ESMA Consultation to Shed Further Light on EU Benchmark Regulation

On September 29th, the European Securities and Markets Authority (ESMA) launched a new consultation on the EU Benchmarks Regulation. The consultation, which ESMA plans to conclude by April 1 2017, covers draft regulatory and technical standards (RTS/ITS) which will implement the Benchmarks Regulation.

While the draft technical standards are applicable to benchmark contributors, administrators and national competent authorities; buy-side firms need to pay close attention to developments in the framework, the draft of which is available here. This is because it is likely that proprietary benchmarks produced by asset managers for their clients will be covered in some way by the legislation.

While it is likely the majority of proprietary benchmarks will fall into the category of non-significant benchmarks, and therefore avoid the full force of the Regulation, it is likely that proprietary benchmarks that reference commodities or interest rates will be considered significant. As a result, it is probable that buy-side firms producing such benchmarks will need to follow the same regulatory framework as benchmark administrators.

It is essential that in the run up to the enforcement of the EU Benchmarks Regulation, which will take place on January 1 2018, buy-side firms keep a close eye on the development of the Regulation. In addition to potentially placing a wide range of new compliance burdens on asset managers using proprietary benchmarks, the regulation adds further to the growing complexity and cost of managing data in the buy-side.

Already facing the challenge of new and demanding regulatory reporting requirements under MAD II and the upcoming MiFID II regulation, buy-side firms must take the opportunity to fundamentally rethink their approach to data management and governance.

From RIMES’ perspective, the scale of these challenges is so great that the case for managing benchmark and market data in-house is becoming increasingly hard to make. With skilled compliance officers in short supply and the cost of overhauling IT systems to cope with the demands of new regulations significant, buy-side firms should take a look at managed data services as an alternative to in-house provision.

The benefits are clear: immediate access to the specialist skills and technology required to stay on top of data management and governance tasks, ongoing software upgrades as new technology becomes available and a significantly lower total cost of ownership. Managed data services provide a clear competitive advantage to buy-side firms looking to adjust to the complexity, uncertainty and cost that characterize today’s trading environment.

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