What has happened?
Following the recent publication by the European Commission of various draft delegated acts under the EU Benchmark Regulation (the BMR), on 5 July 2017 ESMA published its level 3 Q&A guidance on two of the key transitional provisions under the BMR. For more information on the delegated acts, see our briefing here.
ESMA will periodically review the Q&A document and add or update questions and answers as necessary.
What is level 3 guidance?
Level 3 guidance is usually issued in the form of questions and answers (Q&A format), which are based on stakeholder feedback from earlier consultations. In many cases the selection of questions, and their answers, is influenced further by additional stakeholder lobbying.
The purpose of level 3 guidance is to help affected entities interpret existing legislation and "fill in the gaps" where regulations (being level 1) and technical standards (being level 2) are not sufficiently comprehensive. Affected entities are expected to comply with level 3 guidance.
What is covered?
The guidance covers two of the key transitional provisions in the BMR – Article 51(1) and Article 51(3). The market will welcome the clarity that the guidance provides, as these two provisions have been the subject of concern for some time (see our briefing here). We have summarised the guidance below and the two questions and answers are set out in full in the Annex to this briefing.
Article 51(1): where an EU index provider has been providing benchmarks since before 30 June 2016 (the date on which the BMR entered into force), it can continue to provide benchmarks for use by supervised entities up to 1 January 2020, without being authorised or registered (unless its application for authorisation or registration is refused). This includes all benchmarks and is not restricted solely to those which were being provided prior to 30 June 2016. This interpretation is wider than some in the industry had been expecting and will benefit many long-standing index providers.
Article 51(3): ESMA has clarified again that its understanding of the word "existing", as used in Article 51(3), means "existing as of 1 January 2018". This means that, unless its application for authorisation or registration is refused, an EU index provider can continue to provide - and supervised entities can continue to use - benchmarks that were provided on or before 1 January 2018, up until 1 January 2020.
This re-iteration of ESMA's position is helpful, but we are still awaiting the interpretive guidance on this point that ESMA requested from the European Commission earlier this year. The FCA (and presumably most firms) are proceeding on the basis that ESMA's interpretation is correct, but any lingering doubts will not be fully assuaged until the European Commission itself has made its position on the point clear.
