ASIC’s New Benchmark Rules Add to Global Compliance Woes

On June 12, the Australian Securities and Investments Commission (ASIC) published a new set of benchmark rules for the Australian financial market, alongside a benchmarks declaration and a regulatory guide. The new rules have been brought in to maintain market confidence in the country’s financial benchmarks by making them subject to the highest levels of oversight.

Under the terms of the new rules, certain benchmarks have been designated as ‘significant’. Administrators of significant benchmarks fall under a new licensing regime and may be compelled to continue the administration of a given benchmark is asked to do so by ASIC. This is an important step for the Australian market as it ensures that financial benchmarks in the country are aligned with the IOSCO Principles for Financial Benchmarks.

Followers of the EU Benchmark Regulations (BMR) will be familiar with much of the language and purpose of the Australian rules. Indeed, it is thought that one of the main drivers behind the change is to ensure that key Australian benchmarks are compliant with BMR; and therefore available for use in the bloc under BMR’s third-country jurisdiction equivalency stipulations.

ASIC’s move is significant for two reasons. First, it fits a wider global pattern for increased regulatory oversight of the financial sector in general, and financial sector data in particular. Second, the new rules once again highlight the global ramifications of BMR. While BMR was designed to increase confidence in EU benchmarks, the Regulation in effect applies to all benchmark administrators that provide benchmarks to the region, or benchmark users who use benchmarks from the EU.

As the consequences of BMR come into sharper focus, it appears the Regulation is having one of two effects. The first is the positive approach taken by ASIC where stakeholders are working to ensure important benchmarks from third-country jurisdictions remain in use for global financial instruments and contracts. The second, negative approach is benchmark withdrawal, where administrators prefer to take their benchmarks out of operation rather than comply with BMR equivalence rules. Already, there is a possibility that European firms will be barred from using three key Asian fixings as a result of BMR.

Benchmark users worldwide therefore face a prolonged period of uncertainty. In this environment it is critical that firms do everything in their power to keep on top of the fast-changing benchmarks landscape. This requires inventorying their benchmarks universe to understand which of their benchmarks will be regulated by BMR. From there, firms must continually review which benchmarks are currently authorized under BMR for use in the EU. Firms will also need to compile a list of replacement benchmarks in case a key index is withdrawn.

These steps are not only wise for EU firms. As ASIC has shown, across the world the regulatory environment is getting stricter by the day. All firms that want to future proof their business need to put in place an agile, dynamic and effective approach to benchmark management and governance.

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