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ASIC Financial Benchmark (Administration) Rules 2018

Authoritative Version
Rules/Other as made
This instrument imposes certain key obligations on licensed benchmark administrators and require contributors to licensed benchmarks to cooperate with ASIC.
Administered by: Treasury
Registered 07 Jun 2018
Tabling HistoryDate
Tabled HR18-Jun-2018
Tabled Senate18-Jun-2018

EXPLANATORY STATEMENT for

 

ASIC Financial Benchmark (Administration) Rules 2018

 

Prepared by the Australian Securities and Investments Commission

 

Corporations Act 2001

 

The Australian Securities and Investments Commission (ASIC) makes the ASIC Financial Benchmark (Administration) Rules 2018 (the Instrument) under section 908CA of the Corporations Act 2001 (the Act).

 

Section 908CA of the Act provides that subject to Division 3 of Part 7.5B of the Act, ASIC may, by legislative instrument, make rules dealing with one or more of the matters permitted by Subdivision A of Division 3 of Part 7.5B of the Act.

 

1.      Background

 

Part 7.5B of the Act was introduced by the Treasury Laws Amendment (2017 Measures No. 5) Act 2018 to implement a regime for the regulation of financial benchmarks. Benchmark administrator licensees have certain obligations under Part 7.5B of the Act. Obligations can also be imposed on benchmark administrator licensees by financial benchmark rules made by ASIC.

 

A benchmark administrator licensee may have obtained a licence voluntarily or because they are required to do so as the administrator of a financial benchmark that has been declared a significant financial benchmark.

 

2.      Purpose of the Instrument

 

The purpose of the Instrument is to make financial benchmark rules (Rules) which, together with the ASIC Financial Benchmark (Compelled) Rules 2018, implement a financial benchmark administration regime designed to ensure significant financial benchmarks are robust and reliable. The regime is in line with the Final Report titled “Principles for Financial Benchmarks”, dated July 2013 and published by the Board of the International Organization of Securities Commissions (IOSCO Principles), as well as the regimes in other overseas jurisdictions.

 

The Rules impose certain key obligations on benchmark administrator licensees relating to their governance and the financial benchmarks they administer, and also require contributors to licensed benchmarks to cooperate with ASIC.

 

3.      Operation of the Instrument

 

The operation of the Instrument is described in more detail in Attachment A.

 

4.      Matters that may be dealt with in the financial benchmark administration rules

 

Permitted matters

 

Section 908CB of the Act provides that the main permitted matters that may be dealt with in financial benchmark rules made under section 908CA, are:

(a)             the responsibilities of benchmark administrator licensees, including for their oversight of internal and external parties who have a role in the generation and administration of the financial benchmarks specified in those licences;

(b)            the generation and administration of financial benchmarks specified in benchmark administrator licences, including:

(i)              the design of the financial benchmarks; and

(ii)            the use of data or information in generating the financial benchmarks; and

(iii)          the method for generating the financial benchmarks; and

(iv)          the approach for changing the design referred to in subparagraph (i) or changing the method referred to in subparagraph (iii); and

(v)            the public disclosure of one or more of the matters referred to in this paragraph;

(c)             the manner in which benchmark administrator licensees may or must provide their services, including the manner and conditions (including fees) on which they provide access to the financial benchmarks specified in those licences;

(d)            business continuity planning for financial benchmarks specified in benchmark administrator licences, including the possible transition of such benchmarks to new licensees;

(e)             the governance, management and resources (including financial, technological and human resources) of benchmark administrator licensees, including the following:

(i)              the handling of conflicts of interest;

(ii)            the handling of complaints;

(iii)          the monitoring and enforcing of compliance with obligations;

(iv)          the resources that benchmark administrator licensees must have (including requirements relating to the experience, qualifications or fitness for office of their officers and employees);

(v)            the integrity and security of computer systems and other systems;

(vi)          operational reliability;

(vii)        business continuity planning;

(viii)      the operational separation of functions;

(ix)          the outsourcing of functions to other entities;

(f)             the public disclosure of conditions (including fees) on which benchmark administrator licensees provide their services;

(g)            the handling or use of financial benchmark data by benchmark administrator licensees and their officers and employees, including the following:

(i)              the acceptance and retention of such data;

(ii)            the creation of statistical data from such data;

(iii)          the use and disclosure of, and provision of access to, such data (including statistical data referred to in subparagraph (ii));

(h)            the responsibilities of entities whose activities result in the provision of data or information to benchmark administrator licensees for the generation or administration of the financial benchmarks specified in those licences;

(i)              the reporting to ASIC or other regulators of matters relating to:

(i)              benchmark administrator licensees; or

(ii)            the generation or administration of financial benchmarks specified in benchmark administrator licences;

(j)              a matter prescribed by the regulations for the purposes of paragraph 908CB(j).

 

Section 908CC of the Act provides that the other permitted matters that may be dealt with in the financial benchmark rules are matters incidental or related to the matters permitted under section 908CB, including the following:

(a)             subject to section 908CP, the persons who are obliged to comply with requirements imposed by the rules;

(b)            the manner and form in which persons must comply with requirements imposed by the rules;

(c)             the circumstances in which persons are, or may be, relieved from complying with requirements in the rules that would otherwise apply to them;

(d)            the keeping of records, or the provision of records or other information, relating to compliance with (or determining whether there has been compliance with) the rules;

(e)             any other matters that the provisions of the Act provide may be dealt with in the financial benchmark rules.

 

The Rules deal with matters of the kind permitted under sections 908CB and 908CC of the Act.

 

Regulations may limit how rules may deal with certain matters

 

Subsection 908CP(1) of the Act provides that the regulations may prescribe limits on:

(a)             the extent to which, or the way in which, the financial benchmark rules may deal with matters permitted by Subdivision A of Division 3 of Part 7.5B of the Act; or

(b)            the classes of persons on whom those rules may impose requirements; or

(c)             the extent to which those rules may impose requirements (or certain kinds of requirements) on certain classes of persons.

 

To date, no regulations have been made under section 908CP of the Act.

 

5.      Matters to which ASIC has had regard when making the Rules

 

Section 908CK of the Act provides that in considering whether to make a rule under this Division, ASIC:

(a)             must have regard to:

(i)              the IOSCO Principles, as amended from time to time; and

(ii)            the likely effect of the proposed rule on the Australian economy, and on the efficiency, integrity and stability of the Australian financial system; and

(iii)          the likely regulatory impact of the proposed rule; and

(b)            may have regard to any other matters that ASIC considers relevant.

 

In making the Rules, ASIC has had regard to the matters specified in section 908CK of the Act, and has taken into account the Council of Financial Regulators’ final advice to Government on Reforming Australia’s Regulation of Financial Benchmarks[1] (Final CFR Advice).

 

6.      Consultation

 

Subsection 908CL(1) of the Act provides that ASIC must not make a rule under Division 3 of Part 7.5B of the Act unless ASIC:

(a)             has consulted the public about the proposed rule; and

(b)            has also consulted any other person or body as required by regulations made for the purposes of paragraph 908CL(1)(b) of the Act.

 

To date, no regulations have been made for the purpose of paragraph 908CL(1)(b) of the Act.

 

Subsection 908CL(2) of the Act provides that, without limiting the ways in which ASIC may comply with the obligation in paragraph 908CL(1)(a) to consult the public about a proposed rule, ASIC is taken to comply with that obligation if ASIC, on its website:

(a)             makes the proposed rule, or a description of the content of the proposed rule, available; and

(b)            invites the public to comment on the proposed rule.

 

Subsection 908CL(3) of the Act provides that a failure to consult as required by subsection 908CL(1) does not invalidate a rule.

 

ASIC publicly consulted on the Rules in ASIC Consultation Paper 292 Implementing the financial benchmark regulatory regime released on 17 July 2017. Submissions were due 21 August 2017. Following the receipt of eight submissions, and bilateral and industry meetings with stakeholders, ASIC made revisions to the Rules taking into account stakeholder feedback.

 

The Treasury has certified that Final CFR Advice satisfies the requirements of a Regulation Impact Statement in respect of the benchmark administration regime, of which the Rules form a part.

 

7.      Ministerial consent

 

Subsection 908CM(1) of the Act provides that ASIC must not make a rule under Division 3 of Part 7.5B of the Act unless consent for it has been given under subsection 908CM(2).

 

Subsection 908CM(2) of the Act provides that the Minister may, in writing, consent to the making of a rule under Division 3 of Part 7.5B of the Act.

 

On 30 May 2018, the Minister consented in writing to ASIC making the Rules under subsection 908CM(2) of the Act.

 

 


 

8.      Statement of Compatibility with Human Rights

 

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

 

ASIC Financial Benchmark (Administration) Rules 2018

 

The ASIC Financial Benchmark (Administration) Rules 2018 (the Legislative Instrument) is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

 

Overview of the Legislative Instrument

 

The Legislative Instrument, made by ASIC under section 908CA of the Corporations Act 2001 (the Act), makes financial benchmark rules (Rules) which, together with the ASIC Financial Benchmark (Compelled) Rules 2018, implement a financial benchmark administration regime to ensure significant financial benchmarks are robust and reliable. The regime is in line with the Final Report titled “Principles for Financial Benchmarks”, dated July 2013 and published by the Board of the International Organization of Securities Commissions (IOSCO Principles), as well as the regimes in other overseas jurisdictions.

 

The Rules impose certain key obligations on benchmark administrator licensees relating to their governance and the financial benchmarks they administer, and also require contributors to licensed benchmarks to cooperate with ASIC.

 

ASIC publicly consulted on the Rules on 17 July 2017. In making the Rules, ASIC has had regard to the matters specified in section 908CK of the Act, and has taken into account the Council of Financial Regulators’ final advice to Government on Reforming Australia’s Regulation of Financial Benchmarks[2]. The Minister consented in writing to ASIC making the Rules under subsection 908CM(2) of the Act.

 

Human rights implications

 

The Legislative Instrument does not engage any of the applicable rights or freedoms.

 

Conclusion

 

The Legislative Instrument is compatible with human rights as it does not raise any human rights issues.

 


 

Attachment A – Provision-by-provision description of the instrument

Capitalised terms used in this Attachment have the same meaning as in the Rules.

 

Chapter 1: Introduction

Part 1.1 Preliminary

 

Rule 1.1.1 Enabling Legislation

 

Rule 1.1.1 provides that the Instrument is made under section 908CA of the Act. Section 908CA of the Act empowers ASIC to make rules dealing with matters specified in sections 908CB and 908CC of the Act.

 

Rule 1.1.2 Title

 

Rule 1.1.2 provides that the Instrument is the ASIC Financial Benchmark (Administration) Rules 2018.

 

Rule 1.1.3 Commencement

 

Rule 1.1.3 provides that the Instrument commences on the day after it is registered on the Federal Register of Legislation.

 

Rule 1.1.4 Entities that must comply with the rules

 

Rule 1.1.4 provides that the Rules apply to benchmark administrator licensees and Contributors. A Contributor is defined in Rule 1.2.2 as an entity whose activities result in the provision of data or information to a holder of a benchmark administrator licence for the generation or administration of a financial benchmark specified in that licence.

 

The note to Rule 1.1.4 explains that section 908CF of the Act provides that a person (whether a benchmark administrator licensee or otherwise) must comply with the provisions of the financial benchmark rules that apply to the person.

 

Rule 1.1.5 Penalty amounts for each rule

 

Subrule 1.1.5(1) provides that, for paragraph 908CO(b) of the Act, the penalty amount specified under a Rule is the penalty amount for that Rule. Paragraph 908CO(b) of the Act provides that the financial benchmark rules may specify a penalty amount for a rule and the penalty amount must not exceed 5,500 penalty units (for any entity). At the time of making the rules, a penalty unit for the purposes of paragraph 908CO(b) is $210 (see section 4AA of the Crimes Act 1914).

 

Subrule 1.1.5(2) provides that, if no penalty amount is specified under a Rule, there is no penalty for that Rule.

 

Part 1.2 Interpretation

 

Rule 1.2.1 Words and expressions defined in the Corporations Act

 

Rule 1.2.1 provides that words and expressions defined in the Act will, unless otherwise defined or specified in the Rules or the contrary intention appears, have the same meaning in the Rules.

 

Rule 1.2.2 Definitions

 

Rule 1.2.2 provides definitions for the following terms used in the Rules:

·                  Act;

·                  Contributor;

·                  Interest;

·                  Regulations;

·                  Relevant Persons;

·                  Rules; and

·                  Service Provider.

 

Chapter 2: Obligations on benchmark administrator licensees and Contributors

 

Part 2.1 Governance, management and resources

 

Rule 2.1.1 Guiding obligations

 

Rule 2.1.1 provides that a benchmark administrator licensee must, in generating and administering each financial benchmark specified in the licensee’s benchmark administrator licence:

·         act efficiently, honestly and fairly; and

·         to the extent that it is reasonably practicable to do so, generate and administer the financial benchmark in a way that:

o   is appropriate for the nature, complexity and intended use of the financial benchmark; and

o   maintains the quality, integrity, availability, reliability and credibility of the financial benchmark; and

o   does not adversely affect the integrity of any market connected with the financial benchmark.

 

These are overarching general obligations that govern the licensee’s conduct in generating and administering the financial benchmarks specified in the licensee’s benchmark administrator licence. They are standalone obligations and should also guide the licensee in determining how best to comply with the other rules.

 

Rule 2.1.2 Governance

 

Subrule 2.1.2(1) provides that a benchmark administrator licensee must have adequate arrangements for:

(a)             the governance and management of the licensee; and

(b)            the oversight and control of internal and external parties’ role in the generation and administration of each financial benchmark specified in the licensee’s benchmark administrator licence.

 

Paragraph 908CB(a) of the Act permits ASIC to write rules dealing with the responsibilities of benchmark administrator licensees, including for their oversight of internal and external parties who have a role in the generation and administration of the financial benchmarks specified in those licences. Paragraph 2.1.2(1)(b) is limited to the oversight of external parties’ role in the generation and administration of each financial benchmark specified in the licensee’s benchmark administrator licence. This rule is applied more narrowly than permitted by the Act as we do not expect licensees to have control over aspects of third parties’ businesses that do not relate to the generation and administration of the licensed benchmark.

 

Subrule 2.1.2(2) provides that without limiting subrule 2.1.2(1), the arrangements referred to in that subrule must:

(a)             ensure the licensee remains responsible for all of the functions involved in generating or administering each financial benchmark specified in the licensee’s benchmark administrator licence, including, without limitation:

(i)              the design of the financial benchmark; and

(ii)            the method for generating the financial benchmark; and

(iii)          the acceptance, retention and use of financial benchmark data for generating the financial benchmark; and

(iv)          generating the financial benchmark; and

(v)            making the financial benchmark available to users; and

(b)            be designed to ensure the licensee’s compliance with the Act (including the conditions of the licensee’s benchmark administrator licence, the Rules and the Regulations) in generating and administering each of the financial benchmarks specified in the licensee’s benchmark administrator licence; and

(c)             provide for:

(i)              clearly defined processes for the making of decisions in the generation and administration of each of the financial benchmarks specified in the licensee’s benchmark administrator licence; and

(ii)            clearly defined roles and responsibilities in, and accountability for, the governance and management of the licensee and the oversight and control of all of the functions involved in the generation and administration of each of the financial benchmarks specified in the licensee’s benchmark administrator licence.

 

Subrule 2.1.2(3) provides that a licensee must ensure that the arrangements referred to in subrule 2.1.2(1) are:

(a)             reviewed, audited and tested periodically; and

(b)            appropriately updated after significant changes to the licensee’s business of generating and administering financial benchmarks.

 

The frequency for which the arrangements are reviewed, audited and tested under paragraph 2.1.2(3)(a) must be appropriate having regard to the nature, complexity and intended use of the licensed benchmark and how it is determined.

 

Rule 2.1.2 broadly reflects the IOSCO Principles on governance arrangements for financial benchmarks. The purpose of the Rule is to ensure a benchmark administrator licensee has appropriate organisational structures in place to protect the quality, integrity, availability, reliability and credibility of the financial benchmarks it administers.

 

Rule 2.1.3 Outsourcing

 

Rule 2.1.3 provides that if a benchmark administrator licensee outsources any of the functions involved in generating or administering a financial benchmark to another person (the Service Provider), the licensee must:

(a)             ensure that the outsourcing arrangements are covered by a contract with the Service Provider that is in writing; and

(b)            have adequate arrangements to ensure that:

(i)              the licensee complies with its obligations under the Act (including under the conditions of the licensee’s benchmark administrator licence, the Rules and the Regulations) in relation to the outsourced functions; and

(ii)            the Service Provider is complying with its obligations under the outsourcing arrangement; and

(c)             ensure that the outsourcing arrangement does not impair ASIC’s ability to supervise the financial benchmark, including by ensuring:

(i)              the licensee is able to access the books, records and other information of the Service Provider which relate to the outsourced functions within a reasonable time; and

(ii)            that ASIC has the same access to all books, records and other information relating to the outsourced functions and maintained by the Service Provider, that ASIC would have had if not for the outsourcing arrangements.

 

Rule 2.1.3 broadly reflects the IOSCO Principles on oversight of third parties that perform functions involved in generating or administering each financial benchmark specified in the licensee’s benchmark administrator licence. The purpose of Rule 2.1.3 is to ensure that where a function is outsourced to a third party, the benchmark administrator licensee appropriately supervises the Service Provider and ASIC is not impaired in performing its supervisory function by virtue of the outsourcing arrangement.

 

Rule 2.1.4 Conflicts of interest

 

Subrule 2.1.4(1) provides that a benchmark administrator licensee must have adequate arrangements for the handling of conflicts of interest in relation to the generation and administration of each financial benchmark specified in the licensee’s benchmark administrator licence, designed to ensure that conflicts of interest do not adversely affect the integrity, reliability or credibility of the financial benchmark.

 

Subrule 2.1.4(2) provides that without limiting subrule 2.1.4(1), the arrangements referred to in that subrule must address any conflicts of interest between the licensee’s business in generating and administering financial benchmarks and each of the following:

(a)             a Relevant Person;

(b)            any related entity of a Relevant Person;

(c)             any Service Provider;

(d)            Contributors;

(e)             users of the financial benchmark;

(f)             other parts of the licensee’s business;

(g)            the business of any related entity of the licensee.

 

Subrule 2.1.4(3) provides that the licensee must ensure that the arrangements referred to in subrule 2.1.4(1) are:

(a)             reviewed, audited and tested periodically; and

(b)            appropriately updated after significant changes to the licensee’s business of generating and administering financial benchmarks.

 

The frequency for which the arrangements are reviewed, audited and tested under paragraph 2.1.4(3)(a) must be appropriate having regard to the nature, complexity and intended use of the licensed benchmark and how it is determined.

 

Rule 2.1.4 broadly reflects the IOSCO Principles on conflicts of interest for administrators of financial benchmarks. The purpose of Rule 2.1.4 is to ensure that conflicts of interest, such as those which may be created by the licensee’s ownership structure or control, do not influence the licensee in generating or administering the financial benchmarks specified in the licensee’s licence.

 

Rule 2.1.5 Resources

 

Rule 2.1.5 provides that a benchmark administrator licensee must at all times have sufficient human, technological and financial resources to ensure that the licensee is able, to the extent that it is reasonably practicable to do so, to generate and administer each financial benchmark specified in its benchmark administrator licence in a way that maintains the quality, integrity, availability, reliability and credibility of the financial benchmark. Having adequate resources is critical to the capacity of a licensee to carry out the activities regulated by its licence, in a manner that meets the objectives of the Rules. Rule 2.1.5 is an overarching obligation that is complemented by the specific obligations in Rules 2.1.6 and 2.1.7.

 

Rule 2.1.6 Human resources

 

Rule 2.1.6 provides that without limiting Rule 2.1.5, a benchmark administrator licensee must ensure each of its officers, managers, employees and representatives:

(a)             are fit for office, having regard to matters including the person’s fame, character and integrity;

(b)            have the experience, qualifications and skills needed to perform their respective roles and responsibilities in the governance and management of the licensee and oversight and control of the functions involved in the generation and administration of the financial benchmarks specified in the licensee’s benchmark administrator licence.

 

Rule 2.1.7 Financial resources

 

Rule 2.1.7 provides that without limiting Rule 2.1.5, a benchmark administrator licensee must at all times hold or have legally certain access to net assets funded by equity (such as shares, disclosed reserves or other retained earnings) that, at a minimum, are equal to an amount that would enable the licensee to cover at least six months of current operating expenses for the generation and administration of the financial benchmarks specified in its benchmark administrator licence, calculated on a rolling basis at the end of each month.

 

Part 2.2 Financial benchmark design, data and method

 

Rule 2.2.1 Benchmark design

 

Rule 2.2.1 provides that a benchmark administrator licensee must ensure that each financial benchmark specified in the licensee’s benchmark administrator licence is designed, to the extent reasonably practicable, to be an accurate and reliable representation of the Interest.

 

Rule 2.2.1 broadly reflects the IOSCO Principles on benchmark design. The purpose of Rule 2.2.1 is to ensure, to the extent reasonably practicable, that the benchmark’s design meets its objective in reflecting what it is intended to represent.

 

Rule 2.2.2 Financial benchmark data

 

Subrule 2.2.2(1) provides that a benchmark administrator licensee must take all reasonable steps to ensure that the financial benchmark data that is used to generate each financial benchmark specified in the licensee’s benchmark administrator licence is:

(a)             sufficient to accurately and reliably represent the Interest; and

(b)            based on an active market involving arm’s length transactions between buyers and sellers that reflects the competitive forces of supply and demand, where that financial benchmark data is available and meets the requirement in paragraph (a).

 

The purpose of subrule 2.2.2(1) is to ensure that the licensee uses transaction data when such data is available and is sufficient to accurately and reliably represent what the benchmark is intended to measure. This is because transaction data is considered to be more objective and credible than submissions.

 

Subrule 2.2.2(2) provides that a benchmark administrator licensee must have adequate arrangements to control the acceptance, retention and use of the financial benchmark data used to generate or administer each financial benchmark specified in the licensee’s benchmark administrator licence, including arrangements reasonably designed to ensure that:

(a)             the licensee accepts and retains financial benchmark data in a manner that maintains the security and integrity of that data; and

(b)            the financial benchmark data used by the licensee is accurate and complete.

 

The purpose of paragraph 2.2.2(2)(b) is to ensure that the data used by the benchmark administrator is accurate and complete so that the benchmark represents what it is intended to measure.

 

Rule 2.2.2 broadly reflects the IOSCO Principles on data sufficiency and internal controls over data collection.

 

Rule 2.2.3 Methodology

 

Subrule 2.2.3(1) provides that a benchmark administrator licensee must use a method for generating each financial benchmark specified in the licensee’s benchmark administrator licence, that is designed to ensure the quality, integrity, availability, reliability and credibility of the financial benchmark.

 

Subrule 2.2.3(2) provides that without limiting subrule 2.2.3(1), the method referred to in that subrule must:

(a)             be designed to generate, in the widest range of market conditions, a financial benchmark that is an accurate and reliable representation of the Interest;

(b)            establish the criteria for the financial benchmark data that is used to generate the financial benchmark;

(c)             where more than one kind of financial benchmark data may be used to generate the financial benchmark:

(i)              establish the hierarchy for the order in which the financial benchmark data will be used to generate the financial benchmark; and

(ii)            require the use of financial benchmark data referred to in paragraph 2.2.2(1)(b) in priority to other financial benchmark data in generating the financial benchmark;

(d)            establish the:

(i)              minimum quantity and quality of financial benchmark data required to generate the financial benchmark;

(ii)            manner in which the financial benchmark data will be used to generate the financial benchmark; and

(iii)          contingency arrangements that apply where the quantity or quality of the financial benchmark data is inadequate to generate the financial benchmark;

(e)             where the licensee or Relevant Persons may exercise expert judgement or discretion in generating the financial benchmark, establish guidelines, rules or other controls designed to govern and promote transparency and consistency in the exercise of the expert judgement or discretion;

(f)             establish procedures for handling errors, discrepancies or reports of suspicious activity in relation to the financial benchmark data used to generate the financial benchmark;

(g)            establish the frequency of review, audit and testing in accordance with subrule 2.2.3(3); and

(h)            establish the procedures for consulting on a proposed material change to the method in accordance with Rule 2.2.4.

 

Paragraph 2.2.3(2)(e) deals with the benchmark administrator exercising discretion or judgement rather than Contributors exercising discretion or judgement: see subparagraph 2.5.1(2)(b)(iv).

 

Subrule 2.2.3(3) provides that the licensee must ensure that the method and the licensee’s use of the method is:

(a)             reviewed, audited and tested periodically; and

(b)            updated as appropriate.

 

The frequency for which the method and the licensee’s use of the method is reviewed, audited and tested under paragraph 2.2.3(3)(a) must be appropriate having regard to the nature, complexity and intended use of the licensed benchmark and how it is determined.

 

Rule 2.2.3 broadly reflects the IOSCO Principles on the content of the methodology used to make financial benchmark determinations. A robust and transparent methodology is critical to the credibility and integrity of a financial benchmark.

 

Rule 2.2.4 Changes to the method

 

Subrule 2.2.4(1) provides that a benchmark administrator licensee must, in relation to any proposed material change to the method for generating a financial benchmark specified in the licensee’s benchmark administrator licence, other than a material change referred to in subrule 2.2.4(2):

(a)             take such steps as are reasonable in the circumstances to:

(i)              consult with users about the proposed material change, before deciding whether to make the material change; and

(ii)            notify users about the proposed material change, a reasonable time before the change is implemented; and

(b)            notify ASIC in writing about the proposed material change, within a reasonable time before the change is implemented.

 

Subrule 2.2.4(1) broadly reflects the IOSCO Principles on changes to the methodology used to make financial benchmark determinations. The purpose of subrule 2.2.4(1) is to ensure users have adequate notice of, and an opportunity to respond to, changes.

 

Subrule 2.2.4(2) provides that subrule 2.2.4(1) does not apply to a change where ASIC has given the licensee a written notice requiring the licensee to make that change, in accordance with the ASIC Financial Benchmark (Compelled) Rules 2017. The purpose of subrule 2.2.4(2) is to avoid the need to consult and notify users when ASIC has required the change to the method. We expect that ASIC will only be exercising its compulsion powers because markets are disrupted and severely stressed, and the change in method is necessary for the benchmark to be generated in a particular way. In these circumstances, we expect there will not be sufficient time to consult and notify users of the change before it is made. Instead, ASIC will provide guidance to the industry beforehand about how it is likely to exercise its compulsion powers and the manner in which it will do so.

 

Rule 2.2.5 BBSW benchmark administrator licensee to maintain Final Stage Method

 

Subrule 2.2.5(1) provides that a benchmark administrator licensee whose benchmark administrator licence specifies the BBSW must maintain a method (Final Stage Method) for generating and administering the BBSW that is designed, to the extent reasonably practicable, to allow the licensee to generate and administer the BBSW when other methods that the licensee would normally use to generate and administer the BBSW have failed or are likely to fail. “BBSW” for the purposes of Rule 2.2.5 means the bank bill swap rate, a short-term money market benchmark interest rate, as specified in the licensee’s benchmark administrator licence (subrule 2.2.5(4)).

 

Subrule 2.2.5(2) provides that the Final Stage Method must require Contributors to provide financial benchmark data to be used in generating and administering the BBSW, that is based on the exercise of expert judgement by the Contributors.

 

Subrule 2.2.5(3) provides that the licensee must comply with Rule 2.2.4 in relation to any proposed material change to the Final Stage Method.

The purpose of Rule 2.2.5 is to have a predetermined Final Stage Method for the BBSW benchmark that is known to the market and users, which ASIC can require the administrator to use in the event of ASIC exercising its compulsion powers. Because it is predetermined, users will have had the opportunity to provide input into the Final Stage Method and be prepared should it ever be used. Rule 2.2.5 is intended to improve users’ confidence in the BBSW benchmark by knowing how it will be determined in times of extreme stress.

 

Part 2.3 Business continuity and risk management

 

Rule 2.3.1 Risk management

 

Rule 2.3.1 provides that a benchmark administrator licensee must have adequate arrangements to manage risks to the licensee’s ability to generate or administer each financial benchmark specified in the licensee’s benchmark administrator licence in a way that maintains the quality, integrity, availability, reliability and credibility of the financial benchmark - including legal, operational and business risks.

 

Rule 2.3.1 broadly reflects the IOSCO Principles on the control framework for administrators as it relates to the management of risk, as well as core requirements of other licensing regimes established under the Act.

 

Rule 2.3.2 Business continuity

 

Rule 2.3.2 provides that a benchmark administrator licensee must have business continuity, backup and data recovery plans designed to:

(a)             address events that pose a significant risk of disruption to the availability or integrity of each financial benchmark specified in the licensee’s benchmark administrator licence;

(b)            in the event of any disruption to the availability or integrity of financial benchmark specified in the licensee’s benchmark administrator licence, enable the timely restoration of the availability and integrity of the financial benchmark.

 

Business continuity planning is a key element of a licensee’s risk management framework and is critical to the continuity of the financial benchmarks administered by the licensee.

 

Part 2.4 Cessation of a financial benchmark

 

Rule 2.4.1 Transition arrangements

 

Subrule 2.4.1(1) provides that where a benchmark administrator licensee intends to cease generating or administering a financial benchmark, the licensee must, subject to the requirements of any notice given to the licensee under the ASIC Financial Benchmark (Compelled) Rules 2018:

(a)             establish, document and implement adequate arrangements for ensuring, as applicable:

(i)              the orderly transition of the financial benchmark to another benchmark administrator licensee; or

(ii)            orderly cessation of the generation and administration of the financial benchmark;

(b)            notify ASIC:

(i)              that the licensee intends to cease generating or administering the financial benchmark, as soon as reasonably practicable;

(ii)            of the arrangements referred to in paragraph (a), at least 4 weeks before ceasing to generate or administer the financial benchmark; and

(iii)          of any changes to the arrangements referred to in paragraph (a) following the notification in subparagraph (ii), as soon as reasonably practicable after making those changes.

 

Subrule 2.4.1(2) provides that without limiting paragraph 2.4.1(1)(a), the arrangements referred to in that paragraph must take into account whether the financial products or other contracts that reference or otherwise use the financial benchmarks can be amended to reference or otherwise use another financial benchmark before the proposed cessation date.

 

Rule 2.4.1 broadly reflects the IOSCO Principles on planning for the transition or cessation of a licensed benchmark.

 

Part 2.5 Benchmark administrator licensee’s guidelines for Contributors

 

Rule 2.5.1 Requirement to have written guidelines

 

Subrule 2.5.1(1) provides that a benchmark administrator licensee must have written guidelines governing the obligations of Contributors in connection with the licensee’s generation or administration of each financial benchmark specified in the licensee’s benchmark administrator licence. The form of the written guidelines required under subrule 2.5.1(1) is not specified and may vary depending on the relationship the licensee has with Contributors.

 

Subrule 2.5.1(2) provides that without limiting subrule 2.5.1(1), the guidelines referred to in that subrule must deal with:

(a)             the provision of financial benchmark data to the licensee for use in generating the financial benchmark, including:

(i)              the financial benchmark data to be provided;

(ii)            the form and manner in which the financial benchmark data is to be provided; and

(iii)          where applicable, the persons who are authorised to provide financial benchmark data; and

(b)            the arrangements a Contributor must have for:

(i)              where applicable, ensuring only authorised persons provide financial benchmark data to the licensee;

(ii)            providing financial benchmark data in accordance with the guidelines or other requirements of the licensee;

(iii)          managing conflicts of interest in connection with the provision of financial benchmark data to the licensee;

(iv)          governing the exercise of expert judgement or discretion (if any) in connection with the provision of financial benchmark data to the licensee, including by ensuring that persons who exercise expert judgement are adequately trained and supervised;

(v)            the errors, discrepancies and suspicious activities that are to be reported to the licensee in relation to the financial benchmark data provided to the licensee; and

(vi)          keeping records that demonstrate compliance with the guidelines.

 

Subrule 2.5.1(3) provides that the licensee must monitor compliance by each Contributor with the guidelines referred to in subrule 2.5.1(1).

 

Subrule 2.5.1(4) provides that the licensee must ensure the guidelines referred to in subrule 2.5.1(1) require the Contributor to notify the licensee within a reasonable time of any breaches of the guidelines by a Contributor, its officers, managers, employees or representatives.

 

Rule 2.5.1 broadly reflects the IOSCO Principles on a ‘Submitter Code of Conduct’.

 

Part 2.6 Transparency of, and access to, financial benchmarks

 

Rule 2.6.1 Transparency of financial benchmarks

 

Rule 2.6.1 provides that a benchmark administrator licensee must, in respect of each financial benchmark specified in its benchmark administrator licence, publicly disclose adequate information about:

(a)             the Interest; and

(b)            the method for generating the financial benchmark, including the matters set out in subrule 2.2.3(2),

to enable users of the financial benchmark to understand how the financial benchmark is generated and its intended use.

 

“Interest” is defined in Rule 1.2.2 to refer to the state of affairs a financial benchmark is intended to represent. It includes, without limitation, representations based on measurement of transactions, instruments, currencies, prices, estimates, rates, indices, values, financial products, bank accepted bills or negotiable certificates of deposit, or other interests or goods (whether tangible or intangible).

Rule 2.6.1 broadly reflects the IOSCO Principles on transparency of benchmark determinations.

 

Rule 2.6.2 Reasonable and non-discriminatory access to financial benchmarks

 

Rule 2.6.2 provides that a benchmark administrator licensee must have and apply written procedures for access to each financial benchmark specified in its benchmark administrator licence that:

(a)             do not unfairly discriminate between users of the financial benchmark; and

(b)            without limiting paragraph (a), provide for any charges for access to the financial benchmark to be reasonable and non-discriminatory.

 

Rule 2.6.2 deals with a matter permitted by paragraph 908CB(c), being the manner in which benchmark administrator licensees may or must provide their services, including the manner and conditions (including fees) on which they provide access to the financial benchmarks specified in those licences. The note to section 908CB indicates that the rules may (for example) require benchmark administrator licensees to provide open and nondiscriminatory access to their financial benchmarks, including as to price. Rule 2.6.2 is intended to promote access to a licensed benchmark by ensuring that the price that may be charged for access is non-discriminatory and not manifestly unreasonable.

 

Part 2.7 Accountability

 

Rule 2.7.1 Record-keeping

 

Subrule 2.7.1(1) provides that a benchmark administrator licensee must create and maintain records that enable the licensee to demonstrate that it has complied with the requirements of the Rules.

 

Subrule 2.7.1(2) provides that a licensee must keep the records referred to in subrule 2.7.1(1) for a period of seven years from the later of the date the record is made or last amended.

 

Subrule 2.7.1(3) provides that a licensee must ensure the records referred to in subrule 2.7.1(1) are, for the period of time that the records must be retained under subrule 2.7.1(2), accessible within a reasonable time.

 

Rule 2.7.1 is incidental to the main matters dealt with by the Rules and is designed to ensure that the licensee keeps, and is able to produce when required, records evidencing compliance with the Rules.

 

Rule 2.7.2 Complaints

 

Subrule 2.7.2(1) provides that a benchmark administrator licensee must maintain and make publicly available appropriate documented procedures for investigating complaints made in relation to each financial benchmark specified in the licensee’s benchmark administrator licence, including about the licensee’s conduct in relation to the generation or administration of the financial benchmark.

 

Subrule 2.7.2(2) provides that a licensee must ensure:

(a)             complaints are investigated in a timely and fair manner; and

(b)            the outcome of an investigation is communicated to the complainant as soon as practicable.

 

Rule 2.7.2 is designed to ensure benchmark administrator licensees have meaningful and transparent complaints-handling procedures that contribute to the integrity of the financial benchmarks administered by the licensee.

 

Rule 2.7.3 Language of records

 

Subrule 2.7.3(1) provides that all records required to be kept by the Rules must be kept in writing in the English language, or in a manner that enables them to be readily accessible and readily converted into writing in the English language.

 

Subrule 2.7.3(1) provides that if any of the records are not kept in writing in the English language, the benchmark administrator licensee must, if required by ASIC, convert the records into writing in the English language within a reasonable time.

 

Rule 2.7.3 is incidental to the main matters dealt with by the Rules, and is designed to ensure that the records kept by the licensee are available in English to ASIC when required.

 

Part 2.8 Cooperation with ASIC

 

Rule 2.8.1 Reporting of infringements to ASIC

 

Rule 2.8.1 provides that a benchmark administrator licensee that breaches or is likely to breach any of its obligations under the Act (including under the conditions of the licensee’s benchmark administrator licence, the Regulations or the Rules) in generating and administering each of the financial benchmarks specified in the licensee’s benchmark administrator licence, must notify ASIC in writing as soon as practicable, and in any case within 10 business days after becoming aware of the breach or likely breach.

 

Breach notifications allow ASIC to monitor compliance with the Rules, take appropriate action in cases of non-compliance, and identify emerging issues.

 

Rule 2.8.2 Provision of records or other information

 

Subrule 2.8.2(1) provides that a benchmark administrator licensee must, on request by ASIC, provide ASIC with reasonable assistance, books or information which:

(a)             relate to compliance with the Rules or Part 7.5B of Act ; and

(b)            relate to ASIC ascertaining compliance with the Rules or Part 7.5B of the Act.

 

Subrule 2.8.2(2) provides that a request by ASIC under subrule 2.8.2(1) must be in writing and give the licensee a reasonable time to comply.

 

Subrule 2.8.2(3) provides that a licensee must comply with a request under subrule 2.8.2(1) within the time specified in the request or, if no time is specified, within a reasonable time.

 

Rule 2.8.2 assists in ensuring ASIC has access to books or information that ASIC requires to monitor and assess compliance by licensees and others with the Rules and Part 7.5B of the Act.

 

Rule 2.8.3 Provision of records or other information

 

Subrule 2.8.3(1) provides that a Contributor must, on request by ASIC, provide ASIC with reasonable assistance, books or information which:

(a)             relate to compliance with the Rules or Part 7.5B of the Act; or

(b)            relate to ASIC ascertaining compliance with the Rules or Part 7.5B of the Act.

 

Subrule 2.8.3(2) provides that a request by ASIC under subrule 2.8.3(1) must be in writing and give the Contributor a reasonable time to comply.

 

Subrule 2.8.3(3) provides that a Contributor must comply with a request under subrule 2.8.3(1) within the time specified in the request or, if no time is specified, within a reasonable time.

 

Rule 2.8.3 assists in ensuring ASIC has access to books or information that ASIC requires to monitor and assess compliance by Contributors and others with the Rules and Part 7.5B of the Act.

 

 

 

 



[1] http://sjm.ministers.treasury.gov.au/files/2016/10/ATTACHMENT-CFR-advice-financial-benchmarks-regulatory-reform.pdf

[2] http://sjm.ministers.treasury.gov.au/files/2016/10/ATTACHMENT-CFR-advice-financial-benchmarks-regulatory-reform.pdf