1. Overview of the EU Benchmarks Regulation
The EU Benchmarks Regulation (BMR) (Regulation (EU) 2016/1011) was adopted to ensure the accuracy, integrity, and reliability of benchmarks used across the European Union in financial instruments, financial contracts, and investment funds. It was introduced following benchmark manipulation scandals, to restore market confidence and protect investors and consumers.
- Purpose and Scope of the BMR:
The BMR provides a harmonised framework for administrators who provide benchmarks, contributors who submit input data, and users (banks, investment firms, asset managers, etc) who reference benchmarks. It applies to any index that determines payments under a financial contract, the value of a financial instrument, or measures the performance of an investment fund. Certain entities -such as central banks, public authorities, and the press (when merely publishing data), are exempt.
- Key Definitions under the BMR:
Benchmark: | Any index used to determine the value of financial instruments, contracts, or funds. |
Administrator: | The entity that controls the provision of a benchmark. |
Contributor: | Any entity providing input data. |
User: | A supervised entity that uses a benchmark in its financial products. |
- Core Obligations under the BMR:
Governance:
| Administrators must establish sound governance, manage conflicts of interest, and maintain independent oversight.
|
Methodology and Data Integrity:
| Benchmarks must be based on reliable, verifiable data and use a transparent methodology. |
Control and Accountability:
| Administrators must implement internal controls, maintain records, and have business continuity and complaint-handling frameworks. |
Transparency:
| Each benchmark must have a public benchmark statement explaining its purpose, methodology, and data sources.
|
Supervision:
| All administrators are subject to authorisation or registration by their national competent authority. In Cyprus, this is CySEC (Cyprus Securities and Exchange Commission).
|
2. Licensing of Benchmark Administrators under CySEC
Under the BMR, any entity providing a benchmark (to which the BMR applies) in the EU must be authorised or registered by the competent national authority. In Cyprus, this authority is the Cyprus Securities and Exchange Commission (CySEC).
Authorisation vs Registration:
Authorisation: | Applies to administrators of critical or significant benchmarks, or entities not otherwise regulated. It involves a full supervisory approval with detailed assessment of governance, methodology, and resources. |
Registration: | Applies to administrators of non-significant benchmarks or already-supervised financial entities. It follows a lighter regulatory regime with proportionate obligations. |
Any administrator not already supervised under EU financial-services laws must apply for authorisation.
The phrase “entities not otherwise regulated” refers to entities that are not already under EU financial regulation by virtue of another licence or regime. Accordingly, any applicant who is not already supervised under EU financial-services laws must apply for authorisation.
Examples of such “not otherwise regulated” applicants, include private index providers, data vendors, or analytics companies that design and publish benchmarks, consultancy or research firms that calculate indexes used in structured products, or trade associations or other non-regulated entities creating industry reference indices.
Examples of applicants already supervised under EU law, include licensed credit institutions, investment firms, UCITS management companies or insurance or reinsurance undertakings.
3. Classification: Critical, Significant, and Non-Significant Benchmarks
The BMR adopts a proportionate framework, classifying benchmarks based on their importance to financial markets and the systemic impact their failure could have.
- Critical Benchmarks:
A benchmark is critical if it is referenced by financial instruments, contracts, or funds with a total value of at least €500 billion, or if its cessation could threaten financial stability, market integrity, or consumer protection. These benchmarks face the strictest supervision and may be subject to mandatory continuation or contribution requirements. Examples include EURIBOR and €STR.
- Significant Benchmarks:
A benchmark is significant if it is referenced by financial instruments, contracts, or funds with a total value of at least €50 billion, or if its cessation could significantly impact investors or markets even below that threshold. Significant benchmarks are authorised and must comply with most BMR obligations but may opt out of certain procedural requirements, with a compliance statement explaining why.
- Non-Significant Benchmarks:
Benchmarks below the €50 billion threshold, or with limited market impact, are non-significant. They follow a simplified regulatory regime: registration instead of full authorisation, proportionate requirements, and a ‘comply or explain’ statement if exemptions are used. CySEC may still impose stricter conditions were warranted.
Summary Table
Categorisation | Threshold | Impact | Licensing |
Critical | ≥ €500 billion | Systemic impact | Full authorisation, full regime |
Significant | ≥ €50 billion | Major impact | Authorisation with limited opt-outs |
Non-significant | < €50 billion | Lower impact | Registration only, simplified obligations |
4. Excluded Benchmarks under the BMR
Certain benchmarks are completely excluded from the scope of the BMR and therefore require neither authorisation nor registration.
- Central Banks:
Benchmarks produced or endorsed by central banks (e.g., the ECB, Central Bank of Cyprus) are excluded, as they already operate under public mandates ensuring transparency and integrity.
- Public Authorities and Official Statistics:
Indices produced by public authorities or under a public mandate for policy or statistical purposes (e.g., CPI, HICP, GDP) are outside the BMR’s scope.
- Media and Journalistic Indices:
Indices published solely for information or reporting (e.g., a newspaper’s market index) are excluded, provided they are not used to determine payments or values in financial instruments.
- Market Prices from Trading Venues:
Prices resulting directly from actual transactions on regulated markets (e.g., stock exchange closing prices, spot exchange rates) are not considered benchmarks under the BMR.
- Physical Settlement Indices:
Indices used only for physical delivery contracts (e.g., energy or freight indices) fall outside the Regulation.
- Single-Entity or Intra-Group Benchmarks:
Benchmarks used solely by one supervised entity for its own products, or within a single corporate group, are excluded if not made available externally.
Such benchmarks require no authorisation or registration under the BMR.
5. Application for Licensing or Registration in Cyprus
Applications for licensing or registration of a benchmark administrator, must be made to CySEC and include the following:
- Corporate details and ownership structure
- Governance and conflict-of-interest policies
- Oversight structure
- Benchmark methodologies
- Control framework
- Code of conduct
- Complaints and audit processes
- Business continuity plan, and
- Evidence of adequacy of resources.
CySEC may request additional information to ensure compliance.
Authorisation or registration is approved, only if governance systems are robust, input data is reliable, transparency is ensured, and responsible persons demonstrate competence, integrity, and financial soundness.
Authorised/ registered administrators must notify material changes, maintain records for five years, submit periodic reports, and continue full compliance with BMR governance and transparency standards.
6. Conclusion
Any entity in Cyprus intending to act as a benchmark administrator must seek authorisation or registration from CySEC under the BMR framework.
The level of regulatory obligations depends on the benchmark’s classification, which determines the applicable governance, transparency, and supervision standards.
Early engagement with CySEC is advised to confirm classification and ensure compliance.
Disclaimer
This article does not constitute legal advice and is not intended to provide an exhaustive analysis of the topic. For information or guidance on this matter, you should seek legal counsel. You may contact us for appropriate assistance.
