Clause 11 introduces two new articles to the benchmarks regulation. New article 22A requires the administrator of a critical benchmark to undertake,
“an assessment of the capability of the benchmark to measure the underlying market or economic reality”.
The administrator must undertake such an assessment when a contributor to the benchmark is proposing to withdraw, when the FCA requires the administrator to undertake a review of the benchmark, or every two years as part of a biannual review process. New article 22A also requires that:
“If a supervised contributor…intends to cease contributing input data to a critical benchmark”,
it must provide written notification to the administrator at least 15 weeks ahead of the date it intends to cease contributing. That replaces the existing four-week notice period, which is insufficient.
New article 22B requires that the FCA must conduct its own representativeness assessment of the benchmark once it receives an assessment from a benchmark administrator under article 22A. The FCA may also proceed with its assessment where the administrator has failed to provide an assessment within the timelines specified by the legislation. After making its assessment under this article, the FCA must provide the benchmark administrator with a written notice setting out its findings, which could be that it considers that the benchmark is not representative of the economic reality it is intended to measure, that it is at risk of not being representative, or that the representativeness of the benchmark is not at risk.
Those assessments play a crucial role in the process we have designed for managing the wind-down of a critical benchmark. A finding that a benchmark is no longer representative or that its representativeness is at risk is the first step in activating many of the new powers that are being granted to the FCA. I recommend that the clause stand part of the Bill.