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Act Now On EU Benchmark Regulation

At RIMES, we have been saying for some time that benchmark data users must act now on the EU Benchmark Regulation, which may come into force later this year. Earlier this month, we were joined in this call by the Financial Conduct Authority: during a Cisi European regulation forum on February 2nd, Edwin Schooling Latter, Head of Markets Policy at the Financial Conduct Authority, suggested benchmark contributors shouldn’t wait for the legislation to come into law before making the changes it will require.

As reported in the FT Advisor, Schooling Latter also made it clear that benchmark users have some work to do. Specifically, he said that benchmark users must actively seek assurances from benchmark administrators that they are working towards achieving compliance with the upcoming regulation. Schooling Latter also recommended that benchmark users find alternative benchmarks as backups; in case any of the ones they use get taken off the market.

This intervention from the FCA could not have come at a better time, and Schooling Latter is absolutely right to highlight to buy-side firms that this legislation is as important for them as it is for benchmark owners.

But where the FCA falls short is in not advising buy-side firms how they are supposed to deal with the additional complexity and cost the regulation will create. Yes, benchmark users absolutely do need to engage more with benchmark contributors, but exactly where are investment managers supposed to find the time and the money to do this?

One potential answer lies in using a managed data service. It seems clear that the burden of regulations, as well as the ever-growing cost of market data (according to Investit’s IT Value Survey, market data accounted for a full four percent of the overall cost base of investment management firms in 2014), means that it has never made more sense for buy-side firms to pass on the complexities of benchmark data management to specialist managed service providers such as RIMES.

A benchmark data service provides buy-side firms access to a much greater breadth and depth of benchmark and indices data than they could achieve on their own. These type of services also allow for new indices and benchmarks to be added quickly, making it ideal for a world in which new regulations are creating uncertainty. Most importantly, using a managed service can reduce the overall cost of managing benchmark data, so when the EU Benchmark Regulation pushes the cost of data management up further (as it is likely to do), firms can be largely insulated from this increase.

There are some big changes afoot and our advice to buy-side firms is clear: take a good look at your benchmark data management strategy and ask yourself: will it be fit for the changes the EU Benchmark Regulation is bringing about?

View the latest timeline of the EU financial benchmark reform here and our paper reviewing processes and procedures surrounding the management of benchmark activities to increase benchmark transparency and comply with new legislation here.

For further information, please contact us.

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