What changed
The 2023 Directions supersede the 2019 Directions, introducing a holistic risk-based framework for all benchmark administrators regulated by RBI. Key changes include updated definitions (e.g., 'significant benchmark' and 'non-significant benchmark'), eligibility criteria requiring FBAs to be companies incorporated in India, and a clear restriction on unauthorized benchmark administration. The scope now explicitly excludes benchmarks administered and used outside India, internally used benchmarks, and those used by clearing corporations for internal risk management.
What it means for you
Banks and lenders that act as benchmark administrators must now comply with stricter governance and eligibility norms, including incorporation in India. The risk-based approach means significant benchmarks will face tighter scrutiny, while non-significant ones have lighter requirements. This could increase compliance costs for FBAs but aims to enhance market integrity and reduce manipulation risks. Lenders relying on benchmarks for pricing or valuation must ensure their administrators are authorized under these new rules.
What you must do
- Review your benchmark administration activities to determine if you qualify as an FBA under the new Directions.
- Ensure your entity is a company incorporated in India if you administer benchmarks covered by the scope.
- Assess whether your benchmarks are 'significant' or 'non-significant' based on RBI notifications and adjust compliance accordingly.
- Update internal policies and contracts to align with the revised definitions and restrictions on benchmark administration.
- Monitor RBI notifications for any designation of 'significant benchmarks' that may trigger additional requirements.
Who it affects
Financial Benchmark Administrators (FBAs) in India, Banks and financial institutions that administer benchmarks, Market participants using benchmarks for pricing, valuation, or settlement
What is the key change from the 2019 Directions?
The 2023 Directions replace the 2019 version with a holistic risk-based framework covering all benchmark administrators in financial markets regulated by RBI. It introduces updated definitions, eligibility criteria, and a clear restriction on unauthorized benchmark administration.
Who is exempt from these Directions?
Benchmarks administered and used outside India, benchmarks determined and used internally by a person for pricing or valuation, and benchmarks used by clearing corporations for internal risk management are exempt.
What must an FBA do to comply?
An FBA must be a company incorporated in India, ensure it is authorized by RBI, and follow the governance and methodology requirements. It should also classify its benchmarks as significant or non-significant based on RBI notifications.