The Benchmarks Regulation is the EU’s response to high-profile cases of benchmark manipulation, and will bring with it unprecedented levels of scrutiny to the creation and use of benchmarks. With the January 1, 2018 deadline for implementation creeping ever closer Deloitte has published a new overview, which provides useful reading for both benchmark administrators and users.
RIMES has argued for some time that the EU Benchmarks Regulation will bring with it challenges for buy-side firms, and this is backed up by Deloitte’s paper. On a basic level, the Regulation makes data management more complex for buy-side firms by introducing uncertainty over which benchmarks will be available for use. For example, while administrators of existing benchmarks will have until January 2020 to apply to their EU national competent authority for authorisation or registration of the benchmark, it is unclear whether this same transitional arrangement will apply to new benchmarks.
Deloitte’s stance is that all firms – including those in the buy-side – will need to develop a live inventory of benchmarks, along with a control framework, to keep on top of changes to the benchmarks landscape. Deloitte believes that to be effective, any such inventory must capture the following benchmark data: criticality, benchmark type, location of administration, contributor relationships and the use of benchmarks.
Deloitte also highlights that buy-side firms will have a unique responsibility following the introduction of the Regulation; namely, that buy-side firms will need to check regularly that the administrators of the benchmarks they use are on the ESMA register, with a benchmark statement published for each of their benchmarks. Deloitte also suggests that buy-side firms come up with contingency plans in the event a benchmark becomes discontinued or restricted.
The Regulation therefore imposes a significant set of challenges to buy-side firms. The traditional approaches of data management will need to change as the volume of data that firms will be required to manage increases.
From RIMES’ perspective, buy-side firms would be best to leave the management of benchmark data to specialist providers. Cloud-based managed service platforms simplify data management for buy-side firms and ensure that the benchmarks data they use is accurate and up-to-date by default. Moreover, the economies of scale offered by such platforms means that firms can update their systems at a much lower cost than would be incurred by upgrading in-house systems and capabilities.
- What will Replace Libor and Eonia?
- The FCA Turns Up the Heat on Market Abuse
- Service Spotlight: New ESG Indices, A Series of Fund Launches and Seemingly Impossible Deadlines
- [INFOGRAPHIC] The Trends, Challenges & Solutions to Maintaining Market Integrity
- European Commission Adopts BMR Technical Standards