This week, another important milestone on the road to the implementation of the EU Benchmarks Regulation was passed, as the European Securities and Markets Authority (ESMA) published its final report. With the publication of the report, buy-side organizations now have a detailed set of rules about how to implement the Regulation, which aims to put an end to the manipulation of financial benchmarks in Europe.
The final report covers all areas for which the Benchmarks Regulation requested ESMA to develop draft technical standards. This includes the procedures, characteristics and positioning of an oversight function; the appropriateness and verifiability of input data; governance and control requirements for supervised contributors; specification of qualitative criteria for significant benchmarks; and, information to be provided in applications for authorization and registration, amongst other key areas.
ESMA’s new report will be of most use to benchmark administrators and contributors, but should also be studied by buy-side firms. When the EU Benchmarks Regulation comes into force it will have a significant impact on the benchmarks market. Benchmark users will therefore need to take a more active role in monitoring the benchmarks market to ensure that the benchmarks they use are authorized and registered.
Buy-side firms will be helped in this task by the publication in ESMA’s report of draft regulatory technical standards that specify the contents of new benchmark statements that administrators will need to issue. Benchmark statements are intended to be used by buy-side firms to choose from the benchmarks available, and to understand their relevant risks. The analysis of these statements will be a significant task for buy-side firms and will add greatly to the challenges of benchmarks data management.
The EU Benchmarks Regulation is therefore adding further cost and complexity to data management in buy-side firms. When the effects of the legislation are put alongside those of other landmark regulations, not least the Markets Abuse Regulation, it is clear that buy-side firms will need to overhaul their approaches to data management.
One solution to this challenge is to upgrade existing in-house data management capabilities. However, such is the scale of the data challenge that lies ahead, buy-side firms should consider using a managed data service as this can be both cost effective and agile; enabling buy-side firms to outsource the non-core task of sourcing and integrating benchmarks data into their organizations.
With the EU Benchmarks Regulation threatening to increase the cost and complexity of managing benchmarks data, the managed service approach provides an elegant solution that will prove a competitive differentiator to the firms that adopt them.