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Fair, reasonable and non-discriminatory access to regulated benchmarks

In an previous Consultation Paper published in December last year, CP14/32 Bringing additional benchmarks into the regulatory and supervisory regime, the UK’s Financial Conduct Authority (FCA) received responses raising concerns about the unconstrained ability of benchmark administrators to set the costs of benchmarks to users.

In its response detailed in Policy Statement 15/6: Bringing additional benchmarks into the regulatory and supervisory regime, the FCA stated that it would consider whether additions to the rules in Chapter 8 of the Market Conduct Sourcebook (MAR 8) were necessary.

The FCA has considered the issue further and has decided that additional rules are necessary. It has now published Consultation Paper: Fair, reasonable and non-discriminatory access to regulated benchmarks (CP15/18). In CP15/18 the FCA sets out proposals for fair, reasonable and non-discriminatory (FRAND) access to regulated benchmarks by benchmark administrators. The new requirements would be set out in the Market Conduct Sourcebook in MAR 8.3.

Blitz of regulation

The FCA notes that the FRAND proposals are in line with the Markets in Financial Instruments Regulation which will introduce FRAND requirements for benchmark provision in 2019. “MiFIR Article 37 will give central counterparties (CCPs) and trading venues a non-discriminatory right of access to benchmark information and licences. These must be provided at a ‘reasonable commercial price’ that differs between customers only to the extent that that can be objectively justified. This article will come into effect in 2019.”

They also acknowledge the imminent work of the EU benchmarks regulation which is also currently in the process of negotiation. “It is possible that the [EU] regulation will contain a provision regarding benchmark licences similar to FRAND. If that is the case, the proposals set out in this paper, like our other benchmarks rules, will be superseded by the EU regulation when it comes into force.” The FCA says in the consultation.

Scope

Until then, the scope of the FRAND rules will importantly only be applicable to licensees of the eight regulated benchmarks:

  • LIBOR
  • LBMA Gold Price, 
  • LBMA Silver Price, 
  • ICE Swap Rate, 
  • Sterling Overnight Interbank Average (SONIA),
  • Repurchase Overnight Index Average (RONIA), 
  • ICE Brent Index
  • WMR London 4pm Closing Spot Rate.

The suggested FRAND rules and guidance will apply to existing and future pricing and licensing arrangements. They will not apply retrospectively, that is, the FCA will not be requiring reimbursement of fees already paid by the licensee.

Next Steps

While the FCA is drafting FRAND rules and related guidance, it states that it will not approve benchmark administrators’ pricing structures in advance. Nor will it provide individual guidance to administrators which might be construed as FCA endorsement of pricing structures. The FCA states that benchmark administrators will be expected to comply with the letter and the spirit of the FRAND rules and related guidance by themselves, ensuring that their pricing structures satisfy the provisions of the rules and the accompanying guidance.

The FCA expects to publish its Policy Statement and final Handbook text by Q4 2015. The deadline for comments on CP15/18 is 3 August 2015.

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Consultation Paper: Fair, reasonable and non-discriminatory access to regulated benchmarks (CP15/18) is available here.

Consultation Paper 14/32 Bringing additional benchmarks into the regulatory and supervisory regime is available here.

Policy Statement PS15/6 is available here.

The FCA updated web pages on benchmarks are available here.

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