Improving Governance and Oversight of Designated Commodity Benchmarks
On September 26, 2023, the British Columbia Securities Commission (BCSC) announced amendments to the Multilateral Instrument 25-102 Designated Benchmarks and Benchmark Administrators. This regulatory update introduces changes aimed at improving the governance and oversight of designated commodity benchmarks within the financial securities framework.
The amendments include new definitions for clarity and compliance. Notably, the term “designated commodity benchmark” now refers to benchmarks associated with commodities that are officially recognized by the securities regulatory authority. Additionally, the term “front office” is defined to encompass any department responsible for pricing, trading, and related activities for benchmark contributors.
In section 1, the definition of “subject requirements” has been updated to include new compliance requirements, ensuring benchmark administrators are more accountable under the specified regulations.
Section 6 has also undergone revision, particularly regarding compliance monitoring. Benchmark administrators are now mandated to monitor compliance differently based on whether the benchmark is a designated commodity benchmark or not. This differentiation requires enhanced scrutiny for designated commodity benchmarks, which must adhere to specific legislative provisions.
The rules concerning “front office employees” have been refined. Specifically, the amendments establish clearer guidelines for the involvement of these employees in the benchmark process, aiming to prevent conflicts of interest and ensure that their contributions do not undermine the integrity of the benchmarks.
A new section (40.1) delineates provisions specific to designated commodity benchmarks, exempting certain regulations from applying if the benchmarks meet specific criteria. This exemption is contingent upon the benchmarks being both designated commodity and critical benchmarks.
The revisions mandate that benchmark administrators publish detailed methodologies for determining designated commodity benchmarks. Administrators must outline criteria for data input, expert judgment application, and the methodologies’ adequacy for accurately reflecting market conditions.
Designated benchmark administrators must maintain detailed records of all input data, methodologies, and decisions related to benchmark determinations for a minimum of seven years. This requirement ensures that all processes are transparent and can withstand regulatory scrutiny.
These aim to protect investors and to uphold the overall health of the marketplace in response to the evolving complexities of financial securities regulation.
British Columbia (211/2023) September 26, 2023