An agreement between the European Parliament and the Council of the EU on a Regulation of financial benchmarks was found in the night of November 24 to 25, 2015.

Unfortunately, this agreement does not respond to the criticism that EDHEC Risk Institute had expressed in an open letter to the chair of the European Parliament’s ECON committee Roberto Gualtieri on February 20, 2015.

To the extent that the agreement is consistent with the text adopted by the European Parliament on May 19, 2015, we confirm that the proposed Regulation condones opacity in the index provision market. The mere disclosure of a concise methodology will be sufficient to meet the transparency requirements of the Regulation – neither investors nor their advisors will be in a position to perform advanced due diligence on the quality and robustness of methodologies, let alone verify that the advertised track records of indices correspond to the systematic application of their methodologies.

As we had feared (Index Transparency—Recent Regulatory Developments, January 2, 2014), the transparency ambitions stated in the draft Regulation and supporting study of the Commission were shattered in the course of the lawmaking process. The resulting opacity is consistent with IOSCO regulations but at odds with the high transparency standards introduced by ESMA for index-tracking UCITS. At best this will preserve regulatory arbitrage opportunities between UCITS and non-UCITS, at worst it will be the first step towards repelling the exemplary investor protections introduced by ESMA. Either way, it is a dark day for transparency.

In the absence of regulatory protection, it will be incumbent on investors and fiduciaries to demand transparency from providers.