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Financial benchmarks

The Act on Financial Benchmarks implements Regulation (EU) 2016/1011 of the European Parliament and of the Council of 8 June 2016 on financial benchmarks, hereinafter BMR (Benchmark Regulation), and amendments pursuant to Regulation (EU) 2019/2089 of the European Parliament and of the Council of 27 November 2019, in Iceland.

Pursuant to Article 13(1) of the Act, the Minister has issued Regulation No.162/2021 on financial benchmarks, in addition to which the Central Bank of Iceland has, in accordance with Article 13(2) of the Act, set Regulation No. 752/2021 on financial benchmarks.

The regulation applies to both the preparation of benchmarks, including the processing of input data on which they are based, and their use. Benchmarks broadly refer to figures that are accessible to the public, are determined at regular intervals on the basis of certain values, and are used to determine payments, the value of financial instruments or the asset allocation of investment funds. Certain specified entities are exempt from the regulation, including central banks and entities that compile benchmarks for public policy purposes.

Parties who consider they fall under Act no. 7/2021 on financial benchmarks are also encouraged to familiarise themselves with the content of the Act and, as the case may be, implement the obligations stipulated in the Act in their operations, apply for an operating licence or register with the Central Bank.

Different classes and types of benchmarks

Critical benchmarks are defined in Article 20 of the BMR, but this category includes criteria that meet a certain size or importance criteria. Regarding size limits, the benchmarks that are used directly or indirectly in the composition of the benchmarks are covered under Paragraph 1(a) of Article 20 of the BMR, if they are used as a reference for financial instruments, financial contracts or to measure the performance of investment funds and they have a value of at least EUR 500 billion.

Significant benchmarks are defined in Article 24 of the BMR, but this class includes benchmarks that do not meet the size or importance criteria prescribed in Article 20 of the BMR for critical benchmarks, but still meet the same criteria set out in Article 24 of the BMR. Regarding size limits, the benchmarks that are used directly or indirectly in the composition of the benchmarks are covered under Paragraph 1(a) of Article 24 of the BMR, if they are used as a reference for financial instruments, financial contracts or to measure the performance of investment funds, and they have a value of at least EUR 50 billion (but no more than EUR 500 billion, cf. the requirements of Article 20 of the BMR).

Non-significant benchmarks are those benchmarks that are not considered critical according to Article 20 of the BMR, nor significant according to Article 24 of the BMR.

Investment Fund

The Central Bank draws special attention to the fact that the use of the term investment fund in the BMR differs from its use in other legislation in the financial market. The term investment fund in the BMR refers to both alternative investment funds and UCITS.

Operating license or registration

The Central Bank points out in particular that an administrator of a benchmark shall apply to the Central Bank for an authorisation or, as the case may be, register with the Central Bank when determining the benchmark, in accordance with Article 34 of the BMR.

The general rule, which is set out in point a of Article 34(1) of the BMR, is that parties must apply for an authorisation to be the administrator of the provided benchmarks within the meaning of this Regulation. There are two exceptions to this principle: stipulated on one hand in point b of Article 34(1), which states that it is possible for regulated entities to register as an administrator, provided certain conditions are met and, on the other hand, in point c of Article 34(1) which states that a party can register if none of the indices it intends to provide would qualify as a critical benchmark.

Supervised entity means any of the entities listed in points a to m under item 17 of Article 3(1) of the BMR.

Use of the benchmarks

The use of a benchmark refers to one of the items listed in item 7 of Article 3(1) of the BMR. This includes i.a. measuring the performance of an investment fund through an index or a combination of indices for the purpose of tracking the return of such index or combination of indices, of defining the asset allocation of a portfolio, or of calculating the performance-linked fees.

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