Benchmarks are subject to recent national and international regulatory reforms including Regulation (EU) 2016/1011 (the “Benchmark Regulation”) which introduced new requirements with respect to the provisions of a wide range of benchmarks, the contribution of input data to a benchmark and the use of a benchmark within the European Union.
During the last years, serious cases of manipulation of benchmarks (including EURIBOR and LIBOR) have demonstrated that benchmarks may be subject to conflict of interest, use of discretion and abuses by market operators. Weak governance regimes and lack of transparency of benchmark administrators and data input contributors and absence of a harmonised legislative framework within the Member States and the European Union constitute some of the factors which have caused recent failures of the benchmarks.
The manipulation or unreliability of the benchmarks may cause damages to investors and costumers as well as may seriously undermine market confidence and distort real economy. As examples, a large number of consumers and families are parties to consumers loan agreements or loan agreements secured by mortgages which are linked to benchmarks or several benchmarks are used to measure the performance of the funds.
The Benchmark Regulation, which applied from 1 January 2018, intends to provide a harmonized, consistent and effective framework within the European Union to address the vulnerabilities of benchmark by, inter alia (i) strengthening transparency in the process of determining, publishing and collecting data for benchmarks; (ii) establishing common and standards procedures for the governance regime of the benchmarks’ administrators and data input contributors; and (iii) reinforcing sanctioning regimes.
In particular, the Benchmark Regulation, among other things, (i) requires benchmark administrators to be authorised by the competent national authorities or registered (or, if non EU based, to be subject to an equivalent regime) and to comply with extensive requirements in relation to the administration of benchmarks; (ii) provides for new requirements of governance and internal organizational structures of administrators and data input contributors; (iii) set out conditions and minimum contents of the cooperation agreements for the users of benchmarks; and (iv) prevents certain uses by EU supervised entities of benchmarks administrated by entities that are not authorised or registered (or, if non EU based, deemed equivalent).
Obligations for EU administrators, users of benchmarks and entities providing indexes
The administrators established in the European Union which as at 30 June 2016 provide for benchmarks are required to submit within 1 January 2020 the request for the authorization or registration (as the case may be pursuant to article 34 of the Benchmark Regulation) to the competent authority of the Member State in which such administrators are established. Supervised entities may use benchmarks or combination of benchmarks only if such benchmarks are provided by EU administrators included in the register of administrators of benchmarks held by ESMA.
Administrators and users of benchmarks may, respectively, provide or utilize benchmarks up to 1 January 2020 or until the authorization or registration of the administrators are rejected by the competent authority.
The competent authorities of the Member States may also decide to register (as administrators) entities providing indexes – different from benchmarks – which are not subject to supervision if (i) such entities do no provide indexes which qualify as critical benchmarks according to the Benchmark Regulation and (ii) the competent authority is aware that such entities do not provide indexes which are widely utilized for the purposes of the Benchmark Regulation in one or more Member States.
The new Italian regulatory framework for administrators, data input contributors and users of benchmarks
On 13 March 2019, the Legislative Decree No. 19 of 13 February 2019 (the “Legislative Decree”) introducing the implementation measures in Italy for benchmarks applied for financial instruments, financial contracts and for measuring the performance of investment undertakings to enact the Benchmark Regulation was published in the Official Gazette and entered into force on 28 March 2019.
The Legislative Decree designates the Italian competent authorities responsible for carrying out the duties provided under the Benchmark Regulation determining their competence and sets out for the applicable sanctioning regime for entities and individuals resulting in breach with the provisions of the Benchmark Regulations as well as for the employees in charge of management positions involved in such breaches.
Under the Legislative Decree, CONSOB (the Italian competent authority for the supervision of financial markets) has been designated as responsible for the supervision of (i) the administrators of benchmarks established in Italy and (ii) data input contributors established in Italy and subject to national supervision which provide data input to administrators of benchmarks established in the European Union.
CONSOB has also been designated as supervisory authority of the non-financial counterparties (within the meaning of Regulation (EU) No. 648 of 2012, the so-called EMIR Regulation, as recently amended with Regulation (EU) No. 834 of 2019) which are not supervised by other entities for the compliance with certain requirements set forth under Benchmark Regulation.
In addition, the Legislative Decree provides that, where a college among competent authorities is established pursuant to article 46 of the Benchmark Regulation due to the inclusion of one or more benchmarks in the list of critical benchmarks (as referred to in article 20 of the Benchmark Regulation), the Bank of Italy shall be responsible for the supervision of data input contributors which are subject to its supervision (typically banks). The rationale for designating the Bank of Italy as the competent authority, within the above colleges, of the data input contributors for critical benchmarks has been identified in the need to ensure the participation of the Bank of Italy for the assessment procedure of critical benchmarks mainly used for calculating interest rates (such as EURIBOR) of significant importance for the stability of the real economy and the financial system.
As for the supervision of the entities utilising the benchmarks, the Legislative Decree clarifies that CONSOB, the Bank of Italy, IVASS (the Italian authority for the supervision of the insurance and reinsurance undertakings) and COVIP (the Italian commission for the supervision of the pension funds) are responsible for the supervision of the users of the benchmarks which fall under their supervisory competence.
Consequences for the market operators
In the light of the foregoing, the reforms concerning the benchmarks may cause changes in the application of one or more interest rate benchmarks.
Despite the consequences for the reforms of the benchmarks cannot be predicted, the European Money Market Institute (the “EMMI”), the international non-for-profit association under Belgian law providing for the benchmarks EURIBOR and EONIA, has advised users of EMMI benchmarks:
“to regularly assess that the benchmark used is appropriate, suitable and relevant for the targeted market and to put in place their own contingency provisions in the event any of the benchmarks are not available or in case of benchmark discontinuation”.
On one hand, the market operators shall disclose in financial contracts or other financial documents (such as base prospectuses) the uncertainty for the application of certain benchmarks. In particular, investors and parties to financial contracts providing for the use of benchmarks should be made aware that due to the international and national reforms concerning the benchmarks, one or more benchmarks may disappear entirely or perform differently than in the past (as a result of a change in methodology or otherwise).
On the other hand, the administrators of benchmarks shall notify the relevant competent authorities of the countries of its residence to provide indexes to be utilised as benchmarks. Thus, the administrators of benchmarks and the supervised data input contributors are required to enact a process of reform of the corporate governance and of the internal control systems (also to avoid conflict of interest) according to the new requirement and mechanisms introduced by the national and international task force for benchmark regulation.
By way of update, EMMI, as a critical benchmark administrator, has recently notified the Belgian Financial Services and Markets Authority (FSMA) (the authority of the country in which EMMI is established) under the Benchmark Regulation and has implemented a new governance framework, a code of obligations for panel banks providing input data contributions to EMMI for the provision of EURIBOR and a code of obligations for the calculation agents acting as agents of EMMI for the determination of EURIBOR.
 Please refer to “Disposizioni in materia di benchmark (Regolamento (UE) 2016/1011) e operazioni di finanziamento tramite titoli (Regolamento (UE) n. 2015/2365) Atto del Governo 59”, Camera dei Deputati, Atto del Governo n. 59 (http://documenti.camera.it/leg18/dossier/pdf/FI0068.pdf?_1545487082650);
 Pursuant to article 20 of the Benchmark Regulation, EURIBOR has been considered a critical benchmark, and it is therefore subject to mandatory administration, in accordance with article 21 of the Benchmark Regulation. Accordingly, the administrator of EURIBOR shall become part of the register of benchmark administrators referred to in article 36 of the Benchmark Regulation;
 Please refer to the statement of EMMI published on 6 May 2019, https://www.emmi benchmarks.eu/assets/files/D0156A-2019%20 %20EMMI%20has%20applied%20for%20authorisation%20from%20the%20FSMA.pdf.