Renewed Focus on Benchmarks and Indices

February 2024

The IOSCO Principles for Financial Benchmarks and IOSCO Principles for Oil Price Reporting Agencies set out principles for organisations administering financial benchmarks and reporting oil prices respectively. Recent proposals in relation to changes to both the UK and EU Benchmarks Regulation has renewed interest in both sets of IOSCO Principles. 

The International Organization of Securities Commissions (IOSCO) Principles for Oil Price Reporting Agencies (“IOSCO PRA Principles”) were published in October 2012. Work on the IOSCO PRA Principles was initially triggered by global concern over oil price volatility. While the IOSCO PRA Principles specifically considered oil markets, Price Reporting Agencies were encouraged to implement the IOSCO PRA Principles across their business.

The IOSCO Principles for Financial Benchmarks (“IOSCO Financial Benchmarks Principles”) were published in July 2013 and were created in light of the manipulation of major interest rate benchmarks, including LIBOR.

In June 2016, the EU published the EU Benchmarks Regulation (BMR). This regulation built on the work of the IOSCO Principles. Following Brexit, the EU BMR was `on-shored' into UK legislation, creating UK BMR. 

Recent changes to the BMR both within the UK and EU have generated renewed interest in the IOSCO Principles.

Within the EU, the European Commission has proposed revisions to the EU BMR. These would reduce the scope of the regulation to only the most referenced benchmarks, as well as specific categories (such as Paris Aligned Benchmarks).

Within the UK, the transitional period for Third Country administrators to comply with UK BMR has been extended to December 2030.

Given the changes outlined above, benchmark administrators based outside of the UK and EU are less likely to be required to demonstrate adherence to the UK / EU Benchmarks Regulation within the near future. 

For this reason, KPMG in the UK is increasingly seeing firms and clients considering the IOSCO Principles as a strong industry standard for Benchmarks and Indices to adhere to be recognised in different jurisdictions.

While less specific and granular than the Benchmarks Regulation, firms seeking to demonstrate adherence to the IOSCO Principles will want to demonstrate transparency and robustness of activities. For example, this includes ensuring:

• That they have clear and robust governance structures in place. This should include an Oversight Function or Committee to oversee the administration activities as well as policies or procedures that govern the identification and mitigation of potential conflicts of interest.
• That there are clearly defined role and responsibilities, especially where inputs to benchmark / index administration (such as, for example, input data or operational processing) are sourced from outside the administration entity.
• That the index calculation is sufficiently documented within a methodology document which is either published or made available. 
• That the methodology applied is well controlled as part of the index calculation and that there is strong record keeping of the calculation inputs and process.