The time has come for benchmark administrators to decide whether to apply for ‘registered’ or ‘authorized’ status under the EU Benchmarks Regulation (BMR) regime, which comes into force from January 1, 2018. In a new communication, the Financial Conduct Authority (FCA) has reminded benchmark administrators they have just two years from the implementation of BMR to transition to the new regime, and will be allowing firms to register their status from October 1, 2017.
Administrators that plan to continue issuing benchmarks under BMR must choose between the following two status types:
- Authorization – Typically for administrators of ‘Critical’ or ‘Significant’ benchmarks, commodity benchmarks or interest rate benchmarks.
- Registration – Typically for ‘supervised entities’ such as banks, credit institutions, investment firms, UCITS, management companies, AIFMs, etc.
‘Critical’ benchmarks are defined by the Regulation as benchmarks where the value of contracts supporting the benchmark is at least €500bn, or where a Member State recognizes a benchmark as critical. ‘Significant’ benchmarks, meanwhile, are benchmarks where the underlying value of contracts is at least €50bn, or where their withdrawal from the market would influence financial stability.
Buy-side firms are predominantly Users of benchmark as defined by BMR, but not exclusively: many firms that create blended or bespoke benchmarks will also be considered Administrators and therefore must register. For the majority of these firms, the ‘registered’ status will be appropriate as most bespoke or blended benchmarks do not fall into the ‘Significant’ or ‘Critical’ category. If you are in doubt, more information can be found at the FCA’s BMR page.
As Users of benchmarks, buy-side firms are under further pressure to understand whether the indices they use as references are considered as benchmarks under BMR. This is a significant piece of work that will require a wide-ranging inventory of all benchmarks used by the firm. To help buy-side businesses such as asset managers, asset servicers, and insurance companies understand their risk exposure as benchmark Users, we have produces a useful online questionnaire, which can be accessed here.
What is now clear, and which the FCA has highlighted in its latest communication, is that time is running out to act on BMR. Firms must make big decisions about their status and risk profile as soon as possible, and these decisions will impact the compliance processes and systems hey must put in place to adapt to the new regime. By working with managed service providers that specialise in financial data management and compliance technology, firms can help ensure they are addressing BMR comprehensively and in a way that is cost effective and efficient for their businesses.
To receive more information about RegFocussm BMR, the most advanced benchmarks validation solution on the market which solves all regulatory obligations under the new Benchmarks Regulation, , please contact us.
The content provided in these articles is intended solely for general information purposes, and is provided with the understanding that the authors and publishers are not herein engaged in rendering regulatory or other professional advice or services. Consequently, any use of this information should be done only in consultation with qualified legal counsel. The information in these articles was posted with reasonable care and attention. However, it is possible that some information in these articles is incomplete, incorrect, or inapplicable to particular circumstances or conditions. We do not accept liability for direct or indirect losses resulting from using, relying or acting upon information in these articles.
- Navigating Fixed Income Analytics in a POINTless World
- MAR Update – Regulatory Oversight is on the Rise
- Ensuring Regulatory Compliance Includes Detecting Questionable Order Activity
- Ask the Expert: FIGI I.D. Mapping Across Multiple Asset Classes
- More Time Required Before Phasing Out of Key Reference Rates