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The Reserve Bank of India on Wednesday said Financial Benchmark Administrators (FBAs) administering ‘significant benchmarks’ in the markets for financial instruments regulated by it, should be companies incorporated in India and maintaining a minimum networth of ₹1 crore at all times.
In its Financial Benchmark Administrators (Reserve Bank) Directions, 2019, the RBI said it will notify a benchmark as a ‘significant benchmark’ taking into consideration its use, efficiency and relevance in domestic financial markets.
FBA means a person who controls the creation, operation and administration of significant benchmark(s). Benchmarks mean prices, rates, indices, values or a combination thereof related to financial instruments that are calculated periodically and used as a reference for pricing or valuation of financial instruments or any other financial contract.
Guidelines for FBAs
FBAs will be responsible for formulation of the benchmark calculation methodology, determination and dissemination of the benchmark values, ensuring transparency in the benchmark administration, periodic review of the benchmark, and putting in place necessary organisational and process controls for effectively carrying out the above responsibilities.
According to the directions, FBAs need to develop an appropriate oversight function for regular review of various aspects of the significant benchmark determination process. The oversight function will be carried out by a committee, to be called ‘Oversight Committee’, specifically set up for carrying out the function.
FBAs will have a policy to ensure that the Oversight Committee has fair representation of major stakeholders. No person can be a member of the Oversight Committee for more than five years irrespective of the number of terms.
The direction says that the administrators have to ensure effective controls over data collection, storage, processing and dissemination to maintain data security, confidentiality and integrity.
Conflict of interest
FBAs should document and implement policies, procedures and control framework for identification, disclosure, management, mitigation or avoidance of existing and potential conflicts of interest. They should also address the conflict of interest that may exist between the ‘significant benchmark’ determination process and any other business of the Administrator or any of its affiliates.
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