Order No. 75 of 06.04.2023 on the Requirements for the Activity of Benchmark Administrators

ORDER No. 75 of 06.04.2023 on the Requirements for the Activity of Benchmark Administrators Pub. - State Gazette, No. 35 of 18.04.2023 Adopted with Decision No. 254-N of 6.04.2023 by the Commission for Financial Supervision

Chapter One
GENERAL PROVISIONS

Art. 1. This Order regulates:

1. requirements that administrators of small-significance benchmarks must meet regarding the oversight function under Art. 5 of Regulation (EU) 2016/1011 of the European Parliament and of the Council of 8 June 2016 on indices used as benchmarks for the purposes of financial instruments and financial contracts or for measuring the performance of investment funds, and amending Directives 2008/48/EC and 2014/17/EU and Regulation (EU) No 596/2014 (OJ, L 171/1 of 29 June 2016), hereinafter referred to as "Regulation (EU) 2016/1011", the input data under Art. 11 of Regulation (EU) 2016/1011, and the transparency of the methodology under Art. 13 of Regulation (EU) 2016/1011;
2. requirements for the management and control of supervised input data providers under Art. 16 of Regulation (EU) 2016/1011;
3. requirements for administrators of critical and significant benchmarks when consultation is conducted regarding material changes to the methodology or regarding the use of an alternative methodology in exceptional circumstances, together with an appropriate oversight function;
4. requirements for administrators of critical benchmarks when they outsource "cloud" services to external providers;
5. requirements for administrators of critical and significant benchmarks, as well as for small-significance benchmarks, regarding the storage of data related to the use of an alternative methodology.

Chapter Two
REQUIREMENTS FOR ADMINISTRATORS OF SMALL-SIGNIFICANCE BENCHMARKS

Section I
Requirements for the Oversight Function under Art. 5 of Regulation (EU) 2016/1011 for an Administrator of a Small-Significance Benchmark

Art. 2. (1) The administrator of a small-significance benchmark establishes and maintains an oversight function within the meaning of Art. 5, paragraph 4 of Regulation (EU) 2016/1011.
(2) The oversight function is performed by one or more members who together possess the necessary skills and experience to oversee the preparation of a specific benchmark and the responsibilities that the oversight function must perform. Members of the oversight function possess knowledge of the underlying market or the economic indicators that the benchmark aims to measure, as well as of the different types of users of the benchmark and input data providers for the benchmark. (3) An administrator of benchmarks from regulated data may include as members of the oversight function representatives of the persons listed in the definition of "benchmark from regulated data" in Art. 3, paragraph 1, item 24 of Regulation (EU) 2016/1011. (4) The administrator of the benchmark ensures that members of the oversight function with a conflict of interest are fewer than the remaining members, in cases where a benchmark is based on provided input data and representatives of input data providers, or supervised entities using the benchmark, are members of the oversight function. Before appointing the members referred to in the first sentence, the administrator must identify and take into account conflicts arising from relationships between potential members and other external stakeholders. (5) Persons who have directly participated in the preparation of the benchmark and who are members of the oversight function shall not have voting rights. (6) Representatives of the administrative or supervisory body of the administrator cannot be members or observers, but may attend meetings of the oversight function without voting rights. (7) Members of the oversight function cannot be persons who have been subject to administrative or criminal sanctions in connection with market manipulation of financial instruments or attempted manipulation under Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (Market Abuse Regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC (OJ, L 173/1 of 12 June 2014).

Art. 3. (1) The oversight function is part of the organizational structure of the administrator of a small-significance benchmark or of the parent company of the group to which the administrator belongs, but must be separate from the administrative and supervisory body of the benchmark administrator and from other managerial functions of the benchmark administrator. (2) The oversight function assesses and, when necessary, expresses disagreement with decisions of the administrative and supervisory body of the administrator regarding the implementation of the requirements of Regulation (EU) 2016/1011. The oversight function prepares recommendations regarding the oversight of the benchmark to the administrative body, respectively the supervisory body of the administrator. (3) When the oversight function establishes that the administrative or supervisory body of the administrator has taken or intends to take actions that contradict its recommendations or decisions, it clearly reflects this circumstance in the minutes of its next meeting or in its register of decisions.

Art. 4. (1) The oversight function of an administrator of a small-significance benchmark applies procedures adopted by the benchmark administrator, which relate at least to:

1. criteria for the selection of its members;
2. the election, nomination or removal and replacement of its members;
3. temporary restriction of the voting rights of members who are not representatives or employees of the benchmark administrator, in decisions that would directly affect the business activities of the organizations they represent;
4. requirement for members to disclose material conflicts of interest before discussing an agenda item during meetings of the oversight function;
5. recusal or removal of members in cases where there is a conflict of interest in specific discussions;
6. access to documentation necessary for the performance of its duties;
7. measures to be taken in case of violations of the code of conduct;
8. notification to the Commission for Financial Supervision of any suspected market abuse by input data providers or by the benchmark administrator;
9. prevention of improper disclosure of sensitive information or legally protected information obtained, prepared or discussed by the oversight function;
10. public disclosure of declarations of material conflicts of interest of members.
    (2) When the oversight function is performed by a natural person, items 3 and 5 of paragraph 1 do not apply, and the administrator determines an alternative suitable unit or natural person to ensure that the duties of the oversight function are performed consistently in case of absence of the person responsible for the oversight function. (3) Paragraphs 1 and 2 do not apply to administrators of small-significance benchmarks that have chosen not to apply Art. 5, paragraph 2 of Regulation (EU) 2016/1011.

Art. 5. When determining the structure and composition of the oversight function, one or more of the following rules are taken into account:

1. when the complexity or vulnerability of small-significance benchmarks does not require otherwise, the oversight function is exercised by one or more natural persons who are members of the administrator's staff, or other natural persons whose services are made available to the administrator or are under the control of the administrator and who do not directly participate in the preparation of the relevant benchmark and have no conflicts of interest, in particular conflicts of interest arising from a potential interest in the value of the benchmark;
2. the oversight function is exercised by an independent oversight committee or through another suitable governance mechanism, which consists of balanced representation of stakeholders, including supervised entities using the benchmark, input data providers for the benchmark, and other external stakeholders, as well as independent members and staff of the administrator who do not directly participate in the preparation of the relevant benchmarks, nor in related activities;
3. when the administrator is not wholly owned or controlled by input data providers for the benchmark or supervised entities using it, and there are no other conflicts of interest within the oversight function, the oversight function is exercised by an oversight committee or through another suitable governance mechanism, which consists of employees of the benchmark administrator who do not directly participate in the preparation of the relevant benchmarks, nor in related activities, or when such employees are not available, by independent members;
4. when the oversight function consists of multiple committees, suitable governance mechanisms or persons, the administrator of the benchmark designates one of them to be responsible for the overall management and coordination of the oversight function and for interaction with the administrative and supervisory body of the administrator and with the Commission for Financial Supervision.

Section II
Requirements Regarding Input Data under Art. 11 of Regulation (EU) 2016/1011

Art. 6. (1) For the purposes of Art. 11, paragraph 3, letters "a" and "b" of Regulation (EU) 2016/1011, the administrator of small-significance benchmarks ensures all necessary information so that it can verify whether:

1. the submitter has the right to provide input data on behalf of the input data provider in accordance with the licensing requirements under Art. 15, paragraph 2, letter "b" of Regulation (EU) 2016/1011;
2. the input data is provided by the input data provider or selected from a source indicated by the benchmark administrator, within a timeframe determined by the administrator;
3. the input data meets the requirements specified in the benchmark methodology.
   (2) Paragraph 1, items 1 and 2 do not apply to administrators of small-significance benchmarks that have chosen not to apply Art. 11, paragraph 1, letter "b" of Regulation (EU) 2016/1011.

Art. 7. (1) Internal procedures for the oversight and verification of the input data provider, the existence of which the administrator of small-significance benchmarks ensures in accordance with Art. 11, paragraph 3, letter "b" of Regulation (EU) 2016/1011, include at least:

1. procedures that regulate:
   a) the provision of information to the administrator upon its request; b) regular reporting on the fulfillment of duties by the three levels of control functions to the administrative, respectively supervisory body of the input data provider; c) mechanisms for cooperation and information exchange between the three levels of control functions;
2. creation and maintenance of an internal function that performs the role of the first level of control for the provision of input data and:
   a) performs effective verification of input data before its provision; b) verifies whether the submitter has the right to provide input data on behalf of the input data provider in accordance with the requirements under Art. 15, paragraph 2, letter "b" of Regulation (EU) 2016/1011; c) ensures that access to input data is limited to persons participating in the process of its provision, unless access is necessary for audit, investigation, or purposes required by law;
3. creation and maintenance of an internal function that performs the role of the second level of control for the provision of input data and is responsible for:
   a) introducing and maintaining a whistleblowing procedure, which includes appropriate measures for the protection of persons submitting such reports; b) introducing and maintaining procedures for internal reporting of any attempt to manipulate or actual manipulation of input data, any violation of the input data provider's benchmark-related policies, and investigation of such cases immediately upon becoming known; c) monitoring the exchange of information between employees who directly participate in the provision of input data and have duties related to the first level of control, as well as the exchange of information between these employees and other internal functions or external persons, when suspicions of improper actions arise as a result of checks performed by the second-level function; d) developing, maintaining, and operating a policy on conflicts of interest regarding actual or potential material conflicts of interest, which ensures:
   aa) identification and disclosure to the administrator of actual or potential conflicts of interest regarding employees who participate in the process of providing input data and have duties related to the first level of control; bb) lack of direct or indirect link between the remuneration of a submitter of input data and the value of the benchmark, the value of specific submitted data, or the performance of an activity carried out by the input data provider, which could lead to a conflict of interest in connection with the provision of input data for the benchmark; cc) clear separation of duties between employees who participate in the process of providing input data and have duties related to the first level of control, and other employees of the first level of control, where applicable, taking into account the degree of discretion of the respective employees in the use of input data, the nature, scope, and complexity of the activities of the input data provider, and whether a conflict of interest may arise between the provision of input data for the benchmark and trading or other activities carried out by the input data provider;
4. creation and maintenance of an internal function, independent of the first and second levels of control, that performs the role of the third level of control for the provision of input data and is responsible for performing regular checks of the control exercised by the other two control functions.
   (2) Paragraph 1 does not apply to administrators of small-significance benchmarks that are benchmarks from regulated data, and to administrators of small-significance benchmarks that have chosen not to apply Art. 11, paragraph 3 of Regulation (EU) 2016/1011.

Section III
Requirements Regarding the Transparency of the Methodology under Art. 13 of Regulation (EU) 2016/1011

Art. 8. (1) The information that an administrator of a small-significance benchmark or a group of small-significance benchmarks provides in accordance with Art. 13, paragraph 1, letter "a" of Regulation (EU) 2016/1011 includes at least the following elements, where applicable:
1. definition and description of the benchmark or group of small-significance benchmarks, the market of instruments included in the benchmark or the economic indicators it aims to measure;
2. the currency or other unit of measurement of the benchmark or group of small-significance benchmarks;
3. types of input data used to determine the benchmark or group of small-significance benchmarks, and the order of each type;
4. description of the elements of the benchmark or group of small-significance benchmarks, criteria used in the selection of these elements, and determination of their weight;
5. minimum requirements for the quantity of input data and minimum standards for the quality of input data used;
6. clear rules defining how and when the right of discretion may be exercised in determining the benchmark or group of small-significance benchmarks;
7. composition of each group of input data providers and criteria used to determine eligibility for membership in the group;
8. whether the benchmark or group of small-significance benchmarks takes into account potential reinvestment of dividends or coupons paid by its elements;
9. potential limitations of the methodology and methodology to be used in exceptional circumstances, including in case of illiquid markets, during periods of turmoil, or when trade data sources may be insufficient, inaccurate, or unreliable;
10. in cases where the methodology may be changed periodically to ensure that the benchmark or group of benchmarks continues to be representative of the market of instruments included in the benchmark or the economic indicators it aims to measure - criteria on the basis of which this change is made.
(2) For the purposes of paragraph 1, item 1, the following are taken into account, where applicable:
1. general principles for determining exceptional circumstances;
2. summary of alternative ways to calculate the benchmark in exceptional circumstances or of any material element of the methodology that cannot be fulfilled under such circumstances;
3. scope of application of any methodology used in exceptional circumstances, taking into account the type of underlying assets in the prepared benchmark;
4. justification for the use of the methodology specified in item 3, taking into account the scope of application of this methodology.

Art. 9. The information that an administrator of a small-significance benchmark or a group of small-significance benchmarks provides in accordance with Art. 13, paragraph 1, letter "b" of Regulation (EU) 2016/1011 includes at least a description of policies and procedures related to the internal review and approval of the methodology.

Art. 10. The information that an administrator of a small-significance benchmark or a group of small-significance benchmarks provides in accordance with Art. 13, paragraph 1, letter "c" of Regulation (EU) 2016/1011 includes at least a description of the information that the administrator must disclose at the beginning of each consultation with users or stakeholders, including a requirement to disclose the main elements of the methodology that, in its opinion, may be affected by the proposed material change.

Chapter Three
REQUIREMENTS FOR MANAGEMENT AND CONTROL OF SUPERVISED INPUT DATA PROVIDERS UNDER ART. 16 OF REGULATION (EU) 2016/1011

Art. 11. The control mechanisms that the supervised input data provider for small-significance benchmarks must introduce in accordance with Art. 16, paragraph 1 of Regulation (EU) 2016/1011 include establishing and maintaining at least the following elements:

1. an effective mechanism for overseeing the process of providing input data, which includes a risk management system, identification of employees in managerial positions responsible for the data provision process, and participation of all compliance assurance and internal audit functions within the input data provider's organization;
2. a whistleblowing policy, which includes appropriate measures for the protection of persons submitting such reports;
3. a procedure for detecting and managing violations of Regulation (EU) 2016/1011, which also includes review of any identified violation or error and documentation of actions taken.

Art. 12. The systems and control mechanisms that the supervised input data provider for small-significance benchmarks must introduce in accordance with Art. 16, paragraph 2, letter "a" of Regulation (EU) 2016/1011 include a documented and effective process for providing data and at least the following elements:

1. a procedure for determining submitters and determining substitutes;
2. procedures and systems for monitoring the data used for provision, as well as the data provision itself, which procedures and systems are capable of generating alerts in accordance with parameters preset by the input data provider.

Art. 13. (1) Measures for managing conflicts of interest that the supervised input data provider must introduce in accordance with Art. 16, paragraph 2, letter "v" of Regulation (EU) 2016/1011 include at least the following:
1. an up-to-date register of material conflicts of interest to document all identified material conflicts of interest and all measures taken to manage them;
2. physical separation of submitters from other employees of the input data provider, where such separation is appropriate, taking into account the degree of discretion of the respective employees in the use of input data, the nature, scope, and complexity of the activities of the supervised input data provider, and whether a conflict of interest may arise between the provision of input data for the benchmark and trading or other activities carried out by the input data provider.
(2) The supervised input data provider may introduce rules regulating interactions between submitters and employees participating in the provision of input data, in which case the measures under paragraph 1, item 2 do not apply.
(3) Measures for managing conflicts of interest also include remuneration policies for submitters, which ensure that their remuneration for submitting input data for small-significance benchmarks on behalf of a supervised input data provider is not linked to:
1. the value of the benchmark;
2. the specific values of submitted data;
3. the performance of a specific activity of the supervised input data provider, which could give rise to a conflict of interest with the provision of input data for small-significance benchmarks.

Art. 14. Data regarding messages related to the provision of input data, which the supervised input data provider must store in accordance with Art. 16, paragraph 2, letter "g" of Regulation (EU) 2016/1011, include full information on the provided input data and the names of the submitters.

Art. 15. Articles 12 - 14 do not apply to data provision for small-significance benchmarks for which the administrator has chosen not to apply Art. 16, paragraph 2 of Regulation (EU) 2016/1011.

Art. 16. (1) Policies that the supervised input data provider applies in accordance with Art. 16, paragraph 3 of Regulation (EU) 2016/1011, when input data is based on expert opinion, include at least:

1. a mechanism ensuring consistency between different submitters and consistency over time in the use of opinion or exercise of discretion;
2. procedures for regular review of any use of opinion or exercise of discretion.
   (2) Paragraph 1 does not apply to data provision for small-significance benchmarks for which the administrator has chosen not to apply Art. 16, paragraph 3 of Regulation (EU) 2016/1011.

Chapter Four
REQUIREMENTS FOR ADMINISTRATORS OF CRITICAL AND SIGNIFICANT BENCHMARKS

Section I
Requirements for the Methodology to be Used for Determining a Critical or Significant Benchmark in Exceptional Circumstances

Art. 17. The administrator of critical or significant benchmarks, and where applicable - of a group of benchmarks, as part of the details of any methodology to be used in exceptional circumstances in accordance with Art. 13, paragraph 1, letter "a" of Regulation (EU) 2016/1011 and Art. 2, paragraph 1, letter "l" of Delegated Regulation (EU) 2018/1641 of the Commission of 13 July 2018 supplementing Regulation (EU) 2016/1011 of the European Parliament and of the Council as regards regulatory technical standards for further specifying the information that administrators of critical or significant benchmarks provide regarding the use