Followers of this blog will know that we have been tracking how third-country benchmark administrators are reacting to the EU’s Benchmarks Regulation (BMR). This landmark regulation, which imposes strict rules around the methodologies EU benchmark administrators employ, also demands that third-country benchmark administrators and their benchmarks are approved for use in the region. In effect, this means third-country administrators must seek one of three routes to compliance: equivalence, recognition, or endorsement.
However, the complexity of achieving compliance through these routes means that many third-country administrators are putting off the work, or even considering withdrawing their benchmarks altogether. As pointed out in a recent article in WatersTechnology, this eventually would significantly affect the EU market. This is because supervised entities in the EU will not be able to invest in products referencing the third-country benchmarks that fail to be approved for use.
For Rick Redding, CEO of the Index Industry Association, the problem is essentially one of economics: the cost involved in BMR compliance is simply too prohibitive for third-country administrators. As a result, there will be some industry consolidation, while other benchmarks will disappear altogether.
This analysis chimes with internal research into the plans of third-country administrators we conducted here at RIMES more than a year ago. We spoke to a range of data partners from around the world; and even back then, many recognized that they would struggle to comply with BMR. This was particularly the case for smaller organizations that are less able to absorb significant increases to their cost base. It seems that many of these fears are now proving to have been well-placed.
As January 2020 creeps ever closer – the date on which the BMR transitional arrangements come to an end and third-country administrators need to comply with the Regulation – it seems increasingly likely that there will be some level of disruption to the benchmarks landscape. Benchmark users need to do all in their power to mitigate this disruption; and that includes putting in place written plans that set out what action they will take if a benchmark is changed or withdrawn as a result of BMR.
Helping firms get to grips with this challenge is one of RIMES’ main areas of focus this year. The key is data. We can help customers by providing up-to-date feeds mapping out which benchmarks have, and have not been approved for use in the EU. Our RegTech services can also help firms inventory their benchmarks landscape and compile a list of contingency benchmarks to use in case of market withdrawal or material change of a given benchmark. By employing managed RegTech services like these, benchmarks users can help weather any volatility that comes about due to the Benchmarks Regulation.
Contact us 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.
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