Buy-Side firms have only a few months to put in place a robust benchmark inventory management system, according to expert opinion from Information Provider User Group (IPUG); a not-for-profit organization that represents users of market data services. The warning came in a wide-ranging FinOps report on the implications of the new Benchmarks Regulation (BMR), which comes into force on January 1, 2018.
Under BMR, buy-side firms including asset managers, servicers and insurance companies, must ensure the benchmarks they use in financial instruments and contracts are provided by an authorized administrator compliant with the Regulation. The penalties for not doing so are considerable: €1 million or 10 percent of a firm’s total annual revenues, depending on which is the greater amount. Significantly, as established in FinOps’ report, firms may also be compelled to compensate counterparties if a contract is unwound due to the use of a non-compliant benchmark.
Inventory management has therefore become an operational imperative for all buy-side firms; providing a platform through which firms can identify the benchmarks they use, who their administrator is, and which elements of BMR apply to each benchmark. Moreover, inventory management systems can provide a means through which firms can identify substitute benchmarks in case an existing benchmark is withdrawn from the market – another mandate of the Regulation.
However, time is running out for firms to deploy inventory management platforms: IPUG suggests that due to their typical budget cycles, the buy-side must have an inventory management platform integrated into their pre-trade compliance functions by October at the latest if they are to achieve compliance in time.
The exceptionally short timeframes involved in introducing an inventory management platform into buy-side firms’ compliance systems means that time-consuming in-house development will not be an option: firms must act now to ensure BMR compliance. From RIMES’ perspective, the immediacy of this need means that firms cannot afford to spend time and resources on complex configuration and integration processes. Rather, firms should look to the cloud for a much more rapid implementation method.
By taking inventory management ‘as a service’ from the right provider, firms can benefit from a seamless integration with their existing systems, as well from a wide range of value-add functions, such as data enrichment and access to pre-existing substitute benchmark libraries. By leveraging the power of cloud delivery methods, firms will be able to ensure they are fully compliant in time for January, and at a lower total cost than with in-house compliance system development. 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.
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