Financial benchmark rules finalised for Europe 

​Revamped rules covering financial indices which are widely used by ETF managers have been finalised following a political agreement with the European Parliament and the Council in December.Index providers came under greater scrutiny following the LIBOR interest rate scandal in 2012 which prompted by European regulators to create new rules covering to benchmarks used in financial markets which are widely used by ETFs and index tracking mutual funds.The rules created by the EU, known as the Benchmarks Regulation (BMR), have applied to index providers since 2018 with supervisory duties shared between national supervisors and the European Securities and Markets Authority (ESMA).The BMR rules have been narrowed so that only the most economically relevant financial indices remain in scope under the regulations by introducing a minimum threshold of €50bn invested in financial instruments and financial contracts that are linked to a benchmark. This is expected to reduce the number of index providers in scope of the BMR rules by 80% to 90%. Regulators agreed to this in response to concerns that some smaller index providers might withdraw from the EU market if they provided indices on a for‑profit basis or if their limited EU revenues meant that the costs of complying with the BMR were prohibitive. The worry was that some asset managers would no longer be able to use those indices and would be at a clear disadvantage to some competitors.Under the revised rules, indices that are labelled as EU climate transition benchmarks and Paris‑aligned benchmarks (PABs) will remain in scope for the BMR rules as these labels are designed to help investors pursue important green policy objectives.Commodity indices based on data gathered through journalistic means should also stay in scope of the BMR provided that these assets worth a minimum of €200mn are linked to these benchmarks.The new rules will come into force at the start of January 2026.Paris-based ESMA, the regional regulators, has also now become the single supervisor for non-EU index providers, such as the US listed companies MSCI and S&P Global, that offer financial benchmarks to users in the EU.Tobias Sproehnle, co-founder and chief executive of Panta, a financial technology company that provides services to index providers, welcomed the revisions to the BMR rules as a “pragmatic” outcome for European capital markets.”These revised rules strike the right balance between reducing the burden on index providers and index users while ensuring the robustness and reliability of financial benchmarks that are used in the EU, said Sproehnle.The world’s two largest index providers, S&P Global and MSCI, are both US-listed companies. Both have been classified as data publishers by US supervisors so neither company is regulated by the US Securities and Exchange Commission (SEC) even though trillions of American investors’ dollars either directly follow or are performance benchmarked against their ind