The European Commission (EC) has established a list of ‘critical’ indexes that are of particular importance for financial markets and consumer contracts. The list was created by an Implementing Regulation and Euribor (the Euro Interbank Offered Rate), which is one of the most important interest rate indexes in the EU, is the first on the list.

The Commission intends to review and update the list regularly. It will add other benchmarks in due course. These benchmarks are used to price a financial instrument, such as derivatives, or financial contract or to measure the performance of an investment fund.

According to the Commission, the Benchmark Regulation (EU 2016/1011) will apply from January 2018; however, “certain provisions related to the identified critical benchmarks are applicable immediately”.

Three conditions for 'critical benchmarks'

The regulation requires the Commission to establish and review a list of critical benchmarks that fulfil one of three conditions:

1. the total value of financial instruments and financial contracts referencing the benchmark is at least EUR 500 billion;
2. he benchmark is recognised as critical in the Member State the majority of its contributors is located; and
3. the total value of financial instruments and financial contracts referencing the benchmark is at least EUR 400 billion and this benchmark has no, or very few, appropriate market-led substitutes and its cessation would have significant adverse impacts.

Accuracy and integrity of benchmarks

The Commission has stated that this regulation will contribute to "the accuracy and integrity of benchmarks used in financial instruments and financial contracts” in the following ways:

• ensuring that benchmark administrators are subject to prior authorisation or registration and on-going supervision depending on the type of benchmark (e.g. commodity or interest-rate benchmarks);
• improving their governance (e.g. management of conflicts of interest) and requiring greater transparency of how a benchmark is produced;
• ensuring the appropriate supervision of critical benchmarks, such as EURIBOR, the failure of which might create risks for many market participants and even for the functioning and integrity of markets of financial stability.

More information is available about benchmarks on the Commission's website.