From 1 January 2018 (subject to some transitional provisions), the EU Benchmark Regulation will apply the following requirements to any EU fund using a benchmark to measure performance:

• The benchmark will need to be an approved benchmark per the Benchmark Regulation (this is something the fund will be required to verify).

• Prospectus disclosure requirements in relation to the benchmark will apply if the fund references the benchmark in its investment objective.

• Written contingency plans for scenarios where the benchmark materially changes or ceases to be provided must be in place.

The use of performance benchmarks was also the subject of some focus in the recently published Asset Management Final Report from the UK FCA.

The Report presents a proposal that any performance benchmark used in marketing materials should also be referenced in the prospectus. The Report also proposes banning the payment of performance fees on gross returns or returns over a stated prospectus benchmark if marketing materials refer to a "more ambitious target" – i.e. requiring that the performance fee is only payable on outperformance of the most ambitious stated target.

Going forward, funds using performance benchmarks will be minded to consider the potential regulatory implications of doing so.

Many investment indices involve significant conflicts of interest and are used to measure the performance of a fund such as a UCITS fund. Some of those benchmarks are published and others are made available, for free or upon payment of a fee, to the public or a section of the public and their manipulation can adversely affect investors. This Regulation should therefore cover indices or reference rates that are used to measure the performance of an investment fund.