On 24 January 2020, the FCA signalled its increasing focus on ensuring the integrity and resilience of benchmarks by publishing a specific benchmark administrators' supervision strategy (PDF 191 KB). This emphasises, alongside the implementation of the EU Benchmark Regulation (EU BMR), the ongoing regulatory scrutiny of the production and administration of benchmarks in the wake of the LIBOR and FX rates manipulation cases.
Benchmark administrators should review the letter in detail to ensure that they are meeting the FCA's expectations. Given the FCA has clearly signalled its areas of concern in this letter and its intention to supervise proactively, it is essential that firms are prepared to demonstrate that they have robust systems and controls in the focus areas.
The letter also highlights upcoming events that benchmark administrators need to prepare for: implementation of the Senior Manager & Certification Regime (SMCR) in December 2020, end of the post-Brexit transition period at end-2020 and LIBOR cessation at end-2021.
To address the harm sub-standard quality benchmarks could cause to consumers or markets, the FCA:
To address the risk of market disruption from poor management of the cessation or recalculation of benchmarks or lack of operational resilience at firms, the FCA:
The FCA also highlights other areas of focus:
The letter also highlights the FCA's concern that customers are paying excessive fees and charges resulting from high switching costs and complex licensing arrangements of benchmarks, and that competition is not working well in the provision of benchmarks. This could be heightened if accessing data from underlying markets becomes harder or more expensive. The FCA is planning a `call for input' on this issue and wider concerns on the access and use of data in wholesale financial markets.
Benchmark administrators should ensure that they have an effective compliance monitoring and review programme to demonstrate ongoing compliance with the EU BMR requirements, as well as the FCA's regulatory expectations. This could be built into wider transformation projects, for example in the context of operational resilience or the SMCR.
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