ESMA Guidelines and Recommendations

ESMA publishes framework for mandatory benchmarks contributions

ESMA Guidelines and Recommendations

Date: 23 June 2017

On 2 June 2017, the European Securities and Markets Authority (ESMA) published a methodological framework developed to promote convergence in relation to the supervision of critical benchmarks. It is addressed to national competent authorities (NCAs) in jurisdictions where critical interest benchmarks are based.

ESMA has developed the framework to assist NCAs in their selection of supervised entities to be compelled to contribute input data to critical benchmarks should its representativeness become at risk at some point in the future. It applies to all Interbank Offered Rates (IBORs) and to the Euro OverNight Index Average (EONIA). The selection of the supervised entities shall be made on the basis of the size of a supervised entity’s actual and potential participation in the market that the benchmark intends to measure and the framework sets out criteria how to measure it.

The approach adopted in the framework takes into account the general characteristics of the different rates in the European Union that are potential candidates for inclusion in the list of critical benchmarks of the European Commission.

The publication of the framework does not imply any immediate need to use compulsory powers. However, as part of the implementation of the Benchmark Regulation, it is important for supervisors of the administrators to develop their compulsion powers for critical benchmarks. ESMA considers that better supervisory convergence is achieved if the general principles are agreed upfront between supervisors of administrators and of contributors, thus minimising potential future divergences of supervisory practices and preventing potential future disputes.

Final report on draft RTS on Cooperation

ESMA has also published draft Regulatory Technical Standards (RTS) on the minimum contents for cooperation arrangements between ESMA and NCAs in third countries that have been designated as equivalent under the BMR. The draft RTS will enhance to negotiation of the relevant arrangements and thereby allow for the use of third country benchmarks soon after an equivalence decision has been adopted.

The draft RTS will also ensure convergence on cooperation arrangements entered into by EU NCAs and third country NCAs when they supervise administrators that apply for recognition in the EU. These cooperation arrangements will contribute to limiting risks for financial markets.