United Kingdom (and EU regulation)

Update on the proposed Regulation amending the BMR on low carbon benchmarks and positive carbon impact benchmarks

On 10 October 2019, HM Treasury published a letter (dated 9 October 2019) from John Glen MP, Economic Secretary to HM Treasury, to the Earl of Kinnoull, House of Lords EU Committee Chair, in respect of the proposed Regulation amending the Benchmarks Regulation (BMR) on low carbon benchmarks and positive carbon impact benchmarks.

Mr Glen confirms that the proposed Regulation has now completed trilogues and is expected to proceed to the Council of the EU Permanent Representatives Committee (COREPER) in late October 2019. The letter provides an update and seeks clearance for the UK to vote in favour of the final Regulation, should a vote take place prior to the UK’s departure from the EU.

The final position of the proposed Regulation, according to Mr Glen, broadly maintains the Council’s general approach, however, there have been some amendments and additions following the trilogue process.

Key points to note include:

the new optional product labels have been renamed as ‘EU Climate-Transition’ and ‘EU Paris-Aligned’ benchmarks. The clear labelling will make the benchmarks more easily identifiable and avoid confusion for investors and administrators;
UK administrators would only be subject to the sustainability requirements if they chose to label their benchmark as such. Requirements relating to the use of these labels should not affect the recognition of other sustainability benchmarks;
the requirement to disclose the degree of ‘Paris alignment’ to bond and equity benchmarks is restricted to administrators of significant benchmarks (funds with a total value of more than £50bn). This follows the UK’s successful arguments that this was disproportionate and would overburden smaller firms. Similarly, only administrators of significant bond or equity benchmarks are required to ‘endeavour’ to provide at least one EU Climate Transition benchmark by 2022; and
the BMR third country transitional regime has been extended by two years to 31 December 2021 to mitigate against potential market access cliff edge. This extension is intended to give non-EU benchmark administrators time to familiarise themselves with the BMR and apply for endorsement or recognition, or for the European Commission to make equivalence determinations. It also commits the Commission to reviewing the third country regime by April 2020 and outline legislative proposals to reform the regime if appropriate.

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