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Benchmarks Regulation: Market Reforms Start to Take Effect

It is now two and a half months since the EU Benchmarks Regulation (BMR) came into force. The Regulation, which was created to help address market manipulation and rate rigging in the bloc, imposes a stringent set of obligations on benchmark administrators, contributors and users. When implemented fully, BMR promises to fundamentally reshape the benchmarks market in the EU and in third-party jurisdictions.

With time for compliance running out for data vendors, companies such as MSCI and Cboe Europe have this month registered as administrators under the Regulation. This is a sign that the market is beginning to get its house in order around the BMR. Moreover, it likely heralds the beginning of the much wider change that will need to happen before the EU lifts its period of grace for benchmarks that were already in use, as of June 30, 2016.

What does this mean for market participants? With the pace of change picking up, firms cannot afford to delay any longer in identifying their risk profile under the BMR and making the necessary changes to their compliance systems and processes.

First, firms such as asset managers, asset services, and insurance companies need to clarify whether they should seek authorization or registration under BMR as an administrator. If these firms blend or tailor benchmarks internally, they may well be considered as administrators under the terms of the legislation and therefore be required to register as such. The UK’s Financial Conduct Authority has provided some advice for firms to help them decide whether they need to seek authorization or registration.

Second, benchmark users need to establish whether the indices they use as references are considered as benchmarks under BMR. For benchmarks that do fall under the scope of the Regulation, users are required to comply with several stipulations; including creating a list of substitute benchmarks for use in the event an existing benchmark is withdrawn from market. This is to minimize any negative consequences of the Regulation on the sound functioning of financial markets. To help firms better understand their benchmarks ecosystem in relation to BMR, RIMES has created a simple six-step questionnaire that will help firms identify which of their indices will be regulated.

With BMR getting into gear, firms need to move quickly to understand their obligations and update their systems. New ‘RegTech’ managed data services from companies such as RIMES can help firms do just that; much faster and at a lower cost than with in-house alternatives. To receive more information about RegFocus® BMR, the most advanced benchmarks validation solution on the market, which solves all regulatory obligations under the new Benchmarks Regulation, email info@rimes.com

BMR and other regulatory topics will be discussed at RIMES’ upcoming EMEA Client Conference, which will take place in London on May 2. To register, email events@rimes.com

 

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