• statements;
• methodologies, e.g. ratings; and
• key elements

so that they can be easily understood.

Investors should be able to verify the sustainability claims of ESG benchmarks. ESG benchmarks should be fairly labelled so users are not misled about their methodology and contents.

• Grouping “benchmark families”, e.g. at asset class level, could result in ineffective disclosure.
• This is particularly the case where Environmental Social Governance (“ESG”) benchmarks, which often draw upon subjective factors, are grouped with non-ESG benchmarks.

Provide advance notice to FCA of an intention to administer and/or use CSRs in the UK context.

• CSRs do not represent a broad underlying market, making them unsuitable for high volume usage.
• CSRs are not reflective of credit risks emanating from underlying transactions, are overexposed to illiquidity and resultant price volatility.

• the quality of input data, especially where this is sourced from third parties; and
• methodology implementation.

These processes should be appropriate to the size, nature and scale of the benchmark.

A benchmark administrator should inform the FCA in the event of data quality incidents, considering:

• the incident’s severity;
• how widely the benchmark is used; and
• any complaints received as a result.

The benchmark administrator should also provide details of the root cause analysis and remedial steps taken in their notification.

• Poor controls lead to calculation errors and weak validation, undermining a benchmark’s reliability.
• The use of third parties to supply benchmark input data could result in poor outcomes, particularly where such parties are unregulated and/or based overseas.

• Given the fragmented and opaque nature of cryptoasset markets, there is substantial risk that benchmarks tracking them are unreliable or not representative.

In keeping with wider regulation, a benchmark administrator remains responsible for any outsourced activities. Accordingly, a benchmark administrator must:

• maintain appropriate oversight of both intra-group and third party service providers; and
• be in a position to take action if such a provider repeatedly fails to meet service levels, e.g. terminate the relevant outsourcing agreement and restore the relevant processes in house. This means that a benchmark administrator would need to ensure that it had sufficient expertise internally in the event it is ever forced to take such action.

Pursuant to Principle 11, a benchmark administrator must notify the FCA promptly if an operational resilience event occurs.

• late publication;
• non-publication; and
• calculation errors.

FCA is unaware of situations that have occurred or are developing because a benchmark administrator has failed to promptly notify the FCA.

• permanently maintaining an independent oversight function;
• implementing robust processes for changing benchmarks and related policies and procedures;
• processes for identifying and managing conflicts of interest that are independent of user groups;
• complying with the requirements of the Senior Managers Regime and Conduct Rules which have applied to benchmark administrators since 7^th December 2020; and
• maintaining clear records and audit trails to evidence good governance.

• Conflicts of interest are amplified by poor governance and oversight.

• Complex licensing arrangements and obstacles to changing benchmarks could be fuelling higher prices that are disproportionate in view of related costs or quality of service provision.