FCA warns misleading benchmarks could create 'trust deficit'

'Particular concerns' around ESG

Some benchmark constructors “have not accurately described the economic reality” of their product, the Financial Conduct Authority has warned, leading to a potential “trust deficit”.

In a letter published last week (8 September), Edwin Schooling Latter, director of infrastructure and exchanges at the FCA, said the regulator was concerned that there were "particular concerns" around ESG benchmarks and Credit Sensitive Rates, as ESG has exploded in popularity while CSRs grow in the transition away from LIBOR. Schooling Latter said that the subjective nature of ESG factors, alongside the use of ESG data and ratings in benchmark methodologies, "give rise to an increased risk of poor disclosures in ESG benchmark statements". Financial services lags behind in FTSE 100...