UK Benchmarks Regulation

Critical Benchmarks – in summary, where the value of contracts referencing the benchmark is at least €500bn, or where it fulfils both of the following criteria:
 

• the benchmark has no, or very few, appropriate market-led substitutes; and
• in the event the benchmark ceases to be provided, or is provided on the basis of input data no longer fully representative of the underlying market or economic reality or on the basis of unreliable input data, there would be significant and adverse impacts on market integrity, financial stability, consumers, the real economy or the financing of households and businesses in the UK. 

In the case that the benchmark has a sufficient number of appropriate market-led substitutes, it can still be specified as critical if:

• it is not reasonably practicable for one or more users of the benchmark to switch to those substitutes; and
• it fulfils the criterion in point 2 above

There are currently 2 critical benchmarks designated under the Benchmarks Regulation, the ICE Swap Rate and the WMR 4PM Fix.  

Significant benchmarks – where the value of contracts referencing the benchmark is at least €50bn, or where there are no or very few market-led substitutes and there would be an impact on financial stability if the benchmark ceased to be produced.

Commodity benchmarks – where the underlying asset of the benchmark is a commodity as defined by the Markets in Financial Instruments Directive II. 

Commodity benchmarks are subject to the requirements set out in Annex II of the Benchmarks Regulation, unless they are regulated data benchmarks, or are based on submissions the majority of which are supervised entities. 

The articles relating to significant and non-significant benchmarks do not apply to commodity benchmarks.

Regulated data benchmarks – where the input data to the benchmark is provided directly from regulated venues. Certain provisions of the regulation do not apply to regulated data benchmarks, and they cannot be classified as critical.

Interest rate benchmarks – where the benchmark is determined based on the rate at which banks may lend to, or borrow from, other banks or agents in the money markets. Interest rate benchmarks are subject to the requirements set out in Annex I of the regulation. The articles relating to significant and non-significant benchmarks do not apply to interest rate benchmarks.

Non-significant benchmarks – where the value of contracts referencing the benchmark is less than €50bn, and the benchmark is not a commodity or interest rate benchmark.

UK Paris-aligned benchmarks – where a benchmark which is labelled as such and fulfils the following requirements:

• its underlying assets are selected, weighted or excluded in such a manner that the resulting benchmark portfolio’s carbon emissions are aligned with the objective of the Paris Agreement adopted under the United Nations Framework Convention on Climate Change
• it is constructed in accordance with the minimum standards laid down in the delegated acts referred to in Article 19a(2) of the Benchmarks Regulation
• the activities relating to its underlying assets do not significantly harm other environmental, social and governance objectives

UK Climate transition benchmarks – where a benchmark which is labelled as such and fulfils the following requirements:

• its underlying assets are selected, weighted or excluded in such a manner that the resulting benchmark portfolio is on a decarbonisation trajectory (as defined in the Benchmarks Regulation)
• it is constructed in accordance with the minimum standards laid down in the delegated acts referred to in Article 19a(2) of the Benchmarks Regulation