Benchmark Regulation

Art. 28 of Regulation (EU) 2016/1011 – Benchmark Regulation (BMR)
Art. 118-bis of Legislative Decree no. 385 of 1993 – Consolidated Law on Banking (TUB)

As of 1 January 2018, EU Regulation No. 1011/2016, known as the 'Benchmark Regulation', entered into force concerning indices used as reference indices (also 'Benchmark') in financial contracts and financial instruments, or for measuring the performance of investment funds.

In particular, the Benchmark Regulation introduces provisions concerning the use of Benchmarks by supervised entities; these include the obligation for such entities to prepare and maintain robust written plans specifying the actions they intend to undertake in the event of material changes or permanent cessation of benchmarks. Additionally, such plans should, where possible and appropriate, designate one or more alternative rates that may be used to replace the rate subject to cessation or material change.

On 11 January 2024, the new Article 118-bis of the Consolidated Law on Banking  (also referred to as the ‘TUB’) came into force, which stipulates that banks and financial intermediaries publish, even in extract form, and keep constantly updated on their own website the plans required by Article 28, paragraph 2, of the Benchmark Regulation. Updates to plans must be made known to clients at least once a year or at the earliest possible opportunity. Additionally, financial intermediaries are required to include appropriate clauses in contracts for indexed products regarding interest rates, enabling them to identify, also by reference to the aforementioned plans, modifications to the reference rate or a substitute rate in cases of material changes or cessation of the reference rate applied to the contract.

Finally, in the event of the cessation of a Benchmark or material change, financial intermediaries are obliged to inform the client, in accordance with the timing and methods stipulated by the regulations in force from time to time, of the Alternative Benchmark or the Modified Benchmark (as defined below) to be used in determining the amount payable in relation to the specific financial contract concerned.

In order to comply with the regulatory provisions introduced by the Benchmark Regulation and Article 118-bis of the TUB, summarised herein, MBFACTA S.p.A. (hereafter referred to as 'MBFACTA') has established an internal contingency plan for the cessation or material change of the benchmarks (hereafter the 'Plan' or 'Contingency Plan'), of which this documents is an excerpt, regulating the actions MBFACTA will perform should one or more Benchmarks used in its products cease to exist, or undergo substantial modifications.

Monitoring and recording of relevant events

The Plan describes the initiatives that MBFACTA will undertake if the cessation of, or material change to, a Benchmark occurs or is announced by the competent authorities.

It is specified that 'cessation' refers to the permanent or indefinite cessation of the assessment or determination of the Benchmark by the entity responsible for this purpose (e.g. the Benchmark Administrator).

A 'material change' in a Benchmark, on the other hand, is understood to be the so-called 'significant changes' impacting the methodology used for determining the Benchmark tself (e.g., if a Benchmark Administrator decides to implement a new methodology that entails a material change to the underlying financial phenomenon that the Benchmark is intended to measure). Thus, quantitative changes in a Benchmark due to the natural daily fluctuations of the relevant parameter do not apply in this case.

MBFACTA monitors the availability of the Benchmarks used in the MBFACTA Products on an ongoing basis.

Execution of the Contingency Plan

When MBFACTA becomes aware of the future cessation or material change of a Benchmark in use, for example, following an announcement by the index Administrator that it will no longer be provided, it undertakes the necessary activities to ensure an orderly transition from the original index applied to the existing contract to the replacement index (hereinafter referred to as the 'Alternative Benchmark'), or to the index as substantially modified (hereinafter referred to as the 'Modified Benchmark').

It should be noted that in the event of a temporary unavailability of one or more Benchmarks, MBFACTA replaces said Benchmarks with the Alternative Benchmarks identified in accordance with the Plan, and only for the period during which the original index is unavailable. The table representing the Alternative Benchmarks can be found here.

Identification of Alternative Benchmark

In the event of the cessation of one or more Benchmarks used in contracts with clients, MBFACTA applies the Alternative Benchmark identified according to the criteria set forth in the Plan and outlined within the same Plan, as well as in the table available here.

In the selection of possible alternative indices, MBFACTA prioritises any recommendations given by the competent authority, central banks, industry associations, working groups set up specifically for this purpose (e.g. the ECB Working Group), or by the Benchmark Administrator. In the absence of any such recommendations, MBFACTA shall only identify alternative Benchmarks that are compliant with the Benchmark Regulation, , and consistent in terms of their nature, structure, characteristics, and market availability with the Benchmark that has ceased to be provided or is in the process of ceasing..

As far as material changes are concerned, however, MBFACTA normally adopts the index as substantially modified by the relevant Administrator. However, should the Competent Authority for said index recommend or identify a specific alternative index that can be used in place of the substantially modified one, MBFACTA will apply the index recommended by the Competent Authority.

Information for clients

When MBFACTA becomes aware of any event determining the prospective cessation or material change of an index used in relation to its products, it arranges and posts on its website a dedicated notice containing details about the index subject to cessation/material change, the affected products, the anticipated timelines, and the ensuing consequences.

In addition, within 30 days of the date of actual cessation or material change in the reference index (referred to as Effective Date), MBFACTA sends an appropriate notice to clients with contracts linked to the index that has ceased or changed substantially, in order to inform them of the Alternative Benchmark or the Modified Benchmark that will be applied to the contract, the relevant starting date, as well as the opportunity to exercise the right of withdrawal and the methods for doing so, in accordance with the contract terms.

Application of the Alternative Benchmark or the Modified Benchmark

Once the Alternative Benchmark or the Modified Benchmark to be used in contracts with clients has been defined, MBFACTA assesses the need to apply an adjustment factor (referred to as 'Spread Adjustment'), which may assume a positive, negative, or zero value, exclusively for the purpose of minimising, based on the reasonably applicable financial principles and rules, any transfers of value in the transition from the original index applied to the Alternative Benchmark/Modified Benchmark, neutralising, as far as possible, any negative economic impacts on any of the parties to the contract.

Where necessary, MBFACTA will use the Spread Adjustment recommended by the competent authority for this purpose. In the absence of such a recommendation, MBFACTA may apply the Spread Adjustment in accordance with the guidelines issued by the international category organizations or associations recognized by the market.

Monitoring and revision of the Plan

MBFACTA constantly monitors the validity of the Contingency Plan. In the event of regulatory changes, events related to market conditions, changes to the company’s own organization or operations, as well as the introduction of new Benchmarks linked to products and services offered, MBFACTA updates the Plan and informs clients of the changes made at the earliest opportunity and, without prejudice to the foregoing, at least once a year by the means provided for in the applicable regulations.

Table of Benchmarks used

To consult the table showing the Benchmarks currently used by MBFACTA for its products and, where identified, the Alternative Benchmark that will be applied if the original Benchmark ceases to be provided, click here.

Version 1 - last updated November 2024