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23 Apr 2018

The Benchmarks Regulation

The Luxembourg Law of April 17th 2018 on indices used as benchmarks (“Luxembourg Benchmark Law”) was adopted in order to implement Regulation (EU) No. 2016/1011 of 8 June 2016 on indices used as benchmarks ("Benchmarks Regulation" or “BMR”), which came into effect on January 1st 2018. This Luxembourg Benchmark Law designates the Commission de Surveillance du Secteur Financier (“CSSF”) or, in certain cases the Commissariat aux Assurances, as the competent authority to enforce the provisions of the Benchmark Regulation and ensure compliance therewith. The Luxembourg Benchmark Law followed an earlier press release by the CSSF dated October 30th 2017 in which the CSSF highlighted the salient provisions of the Benchmark Regulation.

The CSSF first addressed scope of the new EU directive, noting that the Benchmark regulation targets three (3) main actors:

  1. Benchmark administrators;
  2. Contributors of input data to benchmarks; and
  3. Regulated entities that use indices as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds.

The CSSF then highlighted a number of specific provisions applicable to supervised entities. Pursuant to Article 29, paragraph 1 of the BMR, a supervised entity (defined in Article 3, paragraph 1, point 17) may use a benchmark or a combination of benchmarks if the benchmark is provided by an administrator located in the Union and included in the register established and managed by ESMA referenced in Article 36 of the BMR (the “Register”), or any benchmark listed therein.

Listing on the Register is restricted to:

  1. A natural or legal person located in the Union that intends on acting as administrator and having received approval or registration to that effect as per Article 34 of the BMR; and
  2. A benchmark or a combination of benchmarks provided by an administrator located in a third country as well as the administrator in question, if:
    1. an equivalence decision has been adopted by the Commission in accordance with Article 30 of the BMR;
    2. the administrator in question has acquired prior recognition by the competent authority of its Member State of reference in accordance with Article 32 of the BMR; or
    3. the benchmark or combination of benchmarks in question has been given consent as per Article 33 of the BMR.

In an effort to prevent market disruption, the Benchmarks Regulation provides for, in certain specific situations (see Article 51), a transitional regime of two years starting on the date the Benchmarks Regulation came into effect.

As per Article 29, paragraph 2 of the BMR, where the object of a prospectus to be published under Directive 2003/71/EC or Directive 2009/65/EC is transferable securities or other investment products that reference a benchmark, the issuer, offeror, or person asking for admission to trade on a regulated market must ensure that the prospectus also includes clear and prominent information stating whether the benchmark is provided by an administrator included in the Register. Prospectuses of securities must provide this information as of January 1st 2018. For the prospectuses relating to UCITS approved prior to January 1st 2018 and using a benchmark, the underlying documents must be updated at the latest twelve months following this date.

It is also worth recalling that, as per Article 28, paragraph 2 of the BMR, supervised entities that use a benchmark must produce and maintain robust written plans setting out the actions that they would take in the event that a benchmark materially changes or ceases to be provided. The supervised entities must also reflect those plans in the contractual relationship with their clients.