Among major players in the system being created by the EU’s Benchmarks Regulation (BMR), taking effect January 1, 2018 – including contributors, end users and product issuers – benchmark administrators’ responsibilities are not yet well understood. Previously, a RIMES Insight piece defined benchmark users’ compliance responsibilities.
Bruno Piers de Raveshoot, COO of RIMES’ Regulatory Division, described how users must be sure that benchmark suppliers are registered, that benchmark administrators are EU-based and that they plan to substitute for a benchmark that gets cancelled or changed. BMR also applies to benchmarks created and sourced outside EU countries, if those benchmarks are being used in funds marketed in Europe. So any North American fund marketed in Europe, for example, has to ensure its benchmarks are BMR-compliant.
Firms using benchmarks are not the only parties subject to obligations under BMR, however, as Piers de Raveshoot added more recently at the Buy Side Technology Summit in New York on October 5. Administrators, including those who have created a benchmark and own its methodology (meaning the way the benchmark is calculated), must make sure the benchmark is not manipulated and that the data used to make the benchmark is clean and neutral. To accomplish this, administrators need a lot of controls to avoid any problems that would run afoul of regulators.
Piers de Raveshoot pointed out that some asset managers may be uncertain about whether a provider is administering a benchmark or merely distributing it (as a product issuer). Administration vendors understand their own status clearly, but asset managers and others are just starting to grasp some administrative responsibilities, such as:
- Recording and retaining the past three years of conversations between contributors and staff administering a benchmark
- Quality control
- Classifying and updating every change to the weights and constitution of benchmarks
- Legal implementation and investigation
- Recording and retaining the past five years of data
In a consultation paper the European Securities and Markets Authority (ESMA) issued on September 29, the regulator allows administrators discretion to design benchmark governance arrangements, to decide on the composition of the oversight function most fit for benchmarks they provide, and to include external parties and observers in oversight, but only in a non-voting capacity. ESMA’s paper also requires administrators to use transaction-based input data that is less subject to manipulation, is verifiable and is reviewed.
RIMES offers outsourced administration services, pending further definition of BMR rules by ESMA. The services RIMES offers will be adapted, including an inventory management technology that collects benchmarks and indices from all RIMES clients, and a benchmark administration service expected to launch in the first quarter of 2018.
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