FCA sets out its supervisory strategy for benchmark administrators

FCA sets out its supervisory strategy for benchmark administrators

On 8th September 2022 the UK’s Financial Conduct Authority (“FCA”) published its latest “Portfolio Letter”, this time detailing its supervisory strategy for benchmark administrators. The letter provides insights into the FCA’s perception of areas of benchmark administrators’ activities that are at most risk of non-compliance with applicable regulatory obligations. The insights were gained from recent supervisory activity. The FCA is particularly keen to encourage benchmark administrators to consider how their output affects firms that will become subject to the Consumer Duty when it enters into force on 31st July 2022.

This note summarises key takeaways from the Portfolio Letter.

A summary of the FCA’s expectations and their relationship to perceived risks

Expectation Risk(s)
Accurate, accessible and transparent disclosure of a benchmark administrator’s:

  • 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.
Credit Sensitive Rates (“CSRs”) do not replace London Interbank Offered Rate (“LIBOR”).

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.
Quality of data and data controls
Benchmark administrators should ensure processes are in place to monitor:

  • 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.
Notify the FCA in advance of an intention to start administering cryptoasset benchmarks.
  • Given the fragmented and opaque nature of cryptoasset markets, there is substantial risk that benchmarks tracking them are unreliable or not representative.
Operational resilience
Following the FCA’s rules in PS21/3, a benchmark administrator must be operationally resilient to significant disruption, for example a cyber-attack.

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.

Poor operational resilience leads to:

  • 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.

Oversight and governance
Benchmark administrators must have robust governance arrangements in place, including:

  • 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 7th December 2020; and
  • maintaining clear records and audit trails to evidence good governance.
  • Conflicts of interest are amplified by poor governance and oversight.
Benchmark administrators are expected to engage with the FCA’s Wholesale Data market study. This is expected to commence in November 2022.
  • 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.


What could the FCA do if a benchmark administrator fails to meet its expectations?

In the portfolio letter, the FCA warns that it could employ one or more of the following tools if there is evidence that a benchmark administrator is not meeting its expectations:

  • proactive engagement:
    • monitoring the quality of disclosures;
    • scrutinising the construction and labelling of ESG benchmarks;
    • providing feedback from:
      • a baseline assessment of benchmark administrators’ operational resilience, identifying outliers and weaknesses. This is schedule to take place in Q4 2022 or Q1 2023;
      • “multi-firm work” (likely a thematic review) on data quality, citing weaknesses and outliners. The portfolio letter says this work is “planned”, but does not state when this will take place;
  • use of “supervisory tools”, most likely by mandating a skill persons review (aka “Section 166 report”); and
  • ultimately, enforcement action.

How C&G can help

C&G’s consultants have experience of managing the compliance obligations associated with administering and using benchmarks. Please contact us today to arrange a free one hour consultation to discuss your assurance requirements.


  1. Portfolio letter: Our supervisory strategy for benchmark administrators. Financial Conduct Authority. Available at: https://www.fca.org.uk/publication/correspondence/portfolio-letter-benchmarks-sep-2022.pdf (last accessed 26th September 2022).

Alexander Culley

Alexander Culley

Alexander Culley

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