On February 5, the European Securities and Markets Authority (ESMA) issued a new set of updates to its Q&A on the EU Benchmarks Regulation (BMR), which came into force on January 1 this year. BMR has created a more stringent compliance regime for the administration and use of benchmarks used in financial instruments and contracts in the EU; putting in place new reporting obligations to make the methodologies of benchmarks more transparent while beefing up governance and control. Firms that fail to comply with BMR risk being fined up to 10% of their annual income.
ESMA’s Q&A is intended to promote common, uniform and consistent supervisory approaches and practices in the day-to-day application of the Regulation. In its latest update, ESMA has issued two clarifications:
- The threshold for the exemption for commodity benchmarks under Article 2(2)(g)(ii) of the BMR applies to ‘submissions from contributors the majority of which are non-supervised entities and which both of the following conditions apply: 1. it is referenced by financial instruments for which a request for admission to trading has been made on only one trading venue or which are traded on only one such trading venue; and 2. the total notional value of financial instruments referencing the benchmark does not exceed EUR 100 million’.
- When it comes to investment funds, benchmarks are defined as ‘an index that is used to measure the performance of an investment fund with the purpose of tracking the return of such index’. Additionally, BMR defines a benchmark, ‘as an index that is used to measure the performance of an investment fund with the purpose of defining the asset allocation of a portfolio’. For ESMA, that means when the documentation ‘defines constraints on the asset allocation of the portfolio in relation to an index’. Finally, ESMA states that indices referenced in the documentation of an investment fund solely to compare the performance of the investment fund do not fall under the definition of a benchmark.
It is critically important for firms to ensure they are fully compliant with all stipulations of BMR. For more information of BMR and how to achieve compliance visit our dedicated webpage. Compliance with BMR need not be onerous. At RIMES we have developed a set of BMR compliance tools that can help firms rapidly and effectively meet their new compliance and governance obligations at much lower cost points than in-house alternatives. With BMR in full effect it is important you act now to ensure your business ready.
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, please contact us.
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