Rely on the most comprehensive, up-to-date legal content designed and curated by lawyers for lawyers
Work faster and smarter to improve your drafting productivity without increasing risk
Accelerate the creation and use of high quality and trusted legal documents and forms
Streamline how you manage your legal business with proven tools and processes
Manage risk and compliance in your organisation to reduce your risk profile
Stay up to date and informed with insights from our trusted experts, news and information sources
Access the best content in the industry, effortlessly — confident that your news is trustworthy and up to date.
With over 30 practice areas, we have all bases covered. Find out how we can help
Our trusted tax intelligence solutions, highly-regarded exam training and education materials help guide and tutor Tax professionals
Regulatory, business information and analytics solutions that help professionals make better decisions
A leading provider of software platforms for professional services firms
In-depth analysis, commentary and practical information to help you protect your business
LexisNexis Blogs shed light on topics affecting the legal profession and the issues you're facing
Legal professionals trust us to help navigate change. Find out how we help ensure they exceed expectations
Lex Chat is a LexisNexis current affairs podcast sharing insights on topics for the legal profession
Printer Friendly Version
With the requirement that regulated benchmarks be accessible on a fair, reasonable and non-discriminatory (FRAND) basis from 1 April 2016, Jessica Arrol, associate at Charles Russell Speechlys, suggests that firms carry out a detailed review of existing and template commercial terms as a matter of urgency.
FCA responds to regulated benchmarks consultation, LNB News 08/02/2016 185
The Financial Conduct Authority (FCA) is to make some modifications to its proposals FRAND access to regulated benchmarks, after considering responses to a consultation paper on the issue. The FCA has published a policy statement summarising responses and its view on the responses.
What is the background to this policy statement?
On 1 April 2015, following the government’s response to implementing the Fair and Effective Markets Review’s recommendations on financial benchmarks, the FCA brought seven further benchmarks into the scope of regulation. This brought the total number of UK regulated benchmarks to eight.
In June 2015, the FCA released consultation paper CP15/18 (see LNB News 03/06/2015 85) setting out proposals for FRAND access to regulated benchmarks. The FCA set out that the eight regulated benchmarks are the most widely used benchmarks in the markets which they relate to, so much so that market participants may not in fact be able to switch to an alternative.
This is a concern as ‘benchmark administrators’ (ie a person who has authorisation to carry on the regulated activity of administering a specified benchmark) may hold significant market power such that they are able to vary the commercial terms of arrangements with market participants with limited fear of them switching to an alternative. The FCA confirms that there is a risk, therefore, that a benchmark administrator could exploit their market power in a way to adversely affect competition.
In CP15/18, the FCA set out proposed FRAND requirements to limit the extent to which benchmark administrators can exploit their market power. The intention was for these rules to apply to arrangements with all users of benchmarks. In summary, the FCA proposed that access to benchmarks should always be granted on a FRAND basis, particularly with regard to price.
Policy statement PS16/4 (see LNB 08/02/2016 185) follows up on CP15/18 by summarising the responses received from market commentators and amending the proposals on the basis of these responses. It also sets out in full the final amendments to the FCA Handbook text applying.
What should firms be particularly aware of?
In relation to the new rules, firms should be aware of the following:
Who will the new rules apply to?
In preparing PS16/4, the FCA considered that the proposed FRAND requirements were similar to the rules set out at article 37 of the Markets in Financial Instruments Regulation (EU) 600/2014 (MiFIR). However, these will apply only to access to benchmarks by central counterparties and trading venues (rather than all benchmark users, as proposed by the FCA in CP15/18). The FCA also considered the current EU proposal for a European-wide Benchmarks Regulation.
The FCA set out in PS16/4 that, on reflection, they have decided to await finalisation of the EU Benchmarks Regulation before applying FRAND provisions to all users. Therefore, at first instance, the FCA will initially align the scope of users covered by the proposals with MiFIR, art 37. This means that, in summary, the FRAND requirements will at first instance apply only to central counterparties, multilateral trading facilities and regulated markets (relevant users). Therefore the FCA is effectively bringing forward the expected implementation of MiFIR, art 37 to 2016.
Should the EU Benchmarks Regulation contain FRAND requirements for a more diverse range of benchmark users, the FCA will extend the coverage of FRAND provisions to cover those users.
When will the new rules come into force?
The new rules will be implemented on 1 April 2016.
The FCA confirmed in CP15/18 that the FRAND rules will apply to existing and future pricing and licensing arrangements. This means that the FCA will not ask for adjustments to fees incurred prior to the rules coming into force. In addition, parties to existing contracts will not need to negotiate fees already incurred for services already provided.
However, prices for existing arrangements must be FRAND once the rules enter into force, which means that existing contracts may need to be reviewed.
What are the new rules applying to benchmark administrators?
Benchmark administrators must make sure that relevant users are granted non-discriminatory access to:
Access to the benchmark must be granted:
Where a benchmark administrator charges a relevant user a fee for access, this must be at a reasonable commercial price (taking into account the price at which access is granted (or intellectual property rights are licensed) to other users. Different fees can be charged to different relevant users only where this is objectively justified having regard to reasonable commercial grounds such as the quantity, scope or field of use required.
In assessing whether the terms of access to a benchmark are FRAND, the FCA may consider:
Has the FCA dealt with industry concerns in the final policy statement?
The FCA responded to the issues raised by commentators in detail in PS16/4. At a very high level, however:
What actions do firms need to take in light of this policy statement?
Benchmark administrators need to assess all existing arrangements with relevant users to ensure that these fulfil the FRAND requirements set out above. Benchmark administrators should also consider redrafting their standard terms to ensure that these are FRAND-compliant.
In particular, benchmark administrators should consider whether they are giving each and every user non-discriminatory access to data feeds and information. They will also need to look at fees charged to ensure that every fee represents a reasonable commercial price for access to the benchmark.
In addition, benchmark administrators will need to look at streamlining their customer take-on process to ensure they can give every customer access within three months of a written request.
What practical advice can lawyers give firms regarding this policy statement?
For benchmark administrators, we suggest that these firms carry out a detailed review of existing and template commercial terms as a matter of urgency. It may take some time to review arrangements and renegotiate existing terms to make them FRAND-compliant (if necessary), bearing in mind the 1 April 2016 implementation deadline.
Where a decision is made not to renegotiate or redraft an arrangement (on the basis that the benchmark administrator considers it to be FRAND-compliant in its current state) this should be documented and reasons specified for why the decision was taken.
On the flipside, relevant users should be aware that their contractual arrangements for access to benchmarks should be FRAND-compliant from 1 April 2016. If any such users are unhappy with their existing arrangements with benchmarks, this is a good opportunity to seek to negotiate them. In particular, if relevant users believe that the charges for the benchmarks they access are too high, they can challenge these if they can demonstrate that the charges are not being set at a ‘reasonable commercial price’.
Jessica Arrol advises a range of financial services clients based both in the UK and offshore on UK and EU regulatory issues, with a focus on the private wealth sector. Jessica also advises on the establishment of and the regulatory framework surrounding investment funds and the promotion of such funds.
Interviewed by Kate Beaumont.
The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.
0330 161 1234