EFAMA members are concerned that revisions to the Benchmark Regulation, which is due to be voted in the European Parliament’s ECON committee next week, will harm the EU sustainable finance regime and create gaps in transparency more broadly.
 

Our concerns stem from the Commission’s proposal to remove the majority of benchmarks from the scope of the Regulation. This means removing transparency regarding the methodology used by those benchmarks, among other obligations. Investment funds use benchmarks as a target (in the case of index tracking funds) or to measure performance of the fund. As a result:
 

• This creates a gap in the sustainable finance regime. Benchmark users, like investment funds, must explain to their investors how the benchmarks they use align with ESG objectives and/or characteristics, under the SFDR. To do this, they currently rely on methodology disclosures made by benchmark providers under the Benchmarks Regulation. This transparency is key to protect against greenwashing. We advocate for a straightforward alignment of the SFDR with that of the Benchmarks Regulation, so that where disclosures are needed under the SFDR, the information on the benchmark will be made available. 
• Transparency mismatches will also occur with the UCITS Directive and related ESMA and national guidelines, which require investment funds suitable for retail investors to have transparency regarding the methodology of the indices they use, which the new rules would exempt most index providers from providing in future.
   

We advocate to retain a minimum level of transparency for all benchmarks, as is the case under the existing rules. Disclosure is simple and non-resource intensive. It does not compromise the aims of reducing compliance burdens. This is a practical ask which is necessary for coherent chains of disclosures in financial services, a successful sustainable finance framework and ultimately investor protection.
 

It is also critical to ensure overall alignment with sustainable finance rules. Specifically, investment funds tracking indices will be required to comply with naming conventions to protect against greenwashing – however, the indices they track are not subject to any constraints on how they are named. Therefore, index-tracking funds and ETFs which derive their names from the indices they track (which they are often contractually obliged to do) will have difficulties in complying with naming rules against greenwashing in the absence of the index provider’s explicit authorization to do so.
 

We also fail to understand how the objective of reducing compliance burdens for small and medium enterprises is achieved by fully deregulating all non-significant benchmarks regardless of the size of the administrator. For very large administrators with the scale to comply with the Benchmarks Regulation, it is not logical or proportionate to descope their benchmarks on the basis of resources. We support the proposal of the Renew group not to deregulate benchmarks of entities whose aggregated volume of non-significant benchmarks exceeds a given threshold.
 

Gwen Lehane, Regulatory Policy Advisor at EFAMA, commented: “The negotiations have proceeded at high speed, with the Council of the EU voting its approach in less than 2 months from the European Commission’s original proposal and before the majority of stakeholders had responded to the Commission’s public consultation. The changes will be significant, deregulating the majority of benchmarks available. We urge the European Parliament to give thorough consideration to the impact of these changes on users, end investors and the sustainable finance regime, for which transparency and disclosures are absolutely key.”

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Note to editors :
 

You can find out more about the Benchmarks Regulation here.

Read our latest position paper on the topic here.
 

For further information, please contact:

Hayley McEwen

Head of Communication & Membership Development

Tel: +32 2 548 26 52

Email: Hayley.McEwen@efama.org