FSCA publishes draft conduct standard on benchmarks

The FSCA has published a draft conduct standard on the requirements for providing a benchmark in South Africa. This follows the publication in September last year by National Treasury of draft regulations that will designate the “provision of a benchmark” as a financial service in terms of section 3(3) of the Financial Sector Regulation Act. (Click here to read about the background to the draft regulations.)

Once the regulations take effect, new and existing benchmark administrators will have to apply for a licence from the FSCA and comply with the draft conduct standard.

The FSCA envisages that the conduct standard will be implemented during the first quarter of 2023.

The conduct standard will not apply to all benchmarks. It excludes, among others, the SA Reserve Bank, the internal rates published by credit providers, and the benchmarks provided by public entities for public policy purposes, including measures of employment, economic activity and inflation.

The FSCA says the main objective of the conduct standard is to ensure the accuracy, robustness and integrity of benchmarks and the way benchmarks are determined. It seeks to achieve this by setting out requirements for benchmark administrators.

The standard is also intended to address the harm that could be caused in terms of potential losses to financial customers and investors and distortions in the real economy if failures in, or doubts surrounding, the accuracy or integrity of benchmarks were to undermine market confidence. As such, the standard sets requirements to promote the reliability of benchmark determinations, and to address benchmark governance, quality and accountability mechanisms, the FSCA says.

Onerous requirements

The 31-page conduct standard places some onerous requirements on benchmark administrators, including:

  • They must publish a benchmark statement on each benchmark and each family of benchmarks on its website. The conduct standard sets out the minimum information that must be included in the benchmark statement.
  • They must establish “adequate systems and effective controls” to ensure the integrity of input data so they can identify and report to the FSCA any conduct that may involve the manipulation or attempted manipulation of a benchmark.
  • They must have policies and procedures in place for its employees and any other natural persons whose services are placed at its disposal or under its control to report to the administrator’s governing body on any matter that constitutes a contravention of the conduct standard.
  • They must develop a code of conduct to manage the relationship between the benchmark administrator and the benchmark contributor in respect of the submission of input data to the administrator. The benchmark administrator must be satisfied that benchmark contributors continuously adhere to the code of conduct.

Critical benchmarks

The FSCA may determine a benchmark to be a critical benchmark if it complies with criteria set out in the conduct standard. Specific requirements will apply to critical benchmarks, including explicit disclosures to all benchmark users and reporting obligations to the FSCA.

If an administrator informs the FSCA that it intends to cease providing a critical benchmark, the FSCA may require the administrator to, before ceasing to provide the critical benchmark, undertake an assessment of how the critical benchmark will be transitioned appropriately to a new benchmark administrator, or will be ceased to be provided.

For a benchmark or a combination of benchmarks provided by a foreign benchmark administrator to be used in South Africa, the regulatory framework of that jurisdiction must be equivalent to the regulatory framework established for the provision of a benchmarks in this country. The draft conduct standard sets out what requirements will be considered when assessing the regulatory framework of an applicant jurisdiction against the regulatory framework of South Africa.

Comments on the draft conduct standard must be submitted by 12 April to

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