Last month, the European Securities and Markets Authority (ESMA) issued new updates to its Q&A document for the Benchmarks Regulation (BMR). The Q&A is used to drive common and consistent supervisory approaches and practices in the application of the Regulation in the EU. In this latest set of updates, ESMA provided information on key areas relating both to benchmark administrators and benchmark users such as asset managers, banks and insurance companies.
With regard to benchmark administrators, ESMA published guidance around whether the methodology of a benchmark can include factors that are not input data. As ESMA sets out, administrators can use such factors in their methodologies with the caveat that they are only used to improve the reliability and representativeness of the benchmark, rather than to measure the market or economic reality that the benchmark intends to measure.
ESMA also used the Q&A update to affirm the obligations for supervised entities when it comes to creating written plans for the cessation or material change of a benchmark. In its answer, ESMA stated that the rule applies to all supervised entities and requires that they reflect their plans in the contractual relationship with clients that were entered into after January 1, 2018 – the date BMR came into force.
Benchmarks users are therefore faced with a huge task: mapping the many benchmarks that underpin their financial instruments and contracts and preparing contingency plans for each one. This task is made more challenging by continuing uncertainty around which benchmarks will still be available for use in the EU once the transitional arrangements for BMR come to an end in January next year.
The transitional provisions give third-country and pre-existing EU administrators a period of grace within which to comply. Keeping track of which administrators are actively seeking authorization and which have been refused authorization is a challenging task, given that ESMA’s official Register only lists those that have succeeded in securing authorization.
With the clock ticking down to the 2020 deadline, firms must find a way to keep track of the intentions of benchmark administrators and to integrate this information into their written continency plans. It’s here that RegTech managed data services from providers such as RIMES can add value. Through our relationships with benchmarks administrators and other strategic partners, we can provide firms with a data feed that details all they need to plan around the Benchmarks Regulation. Such data-first services can help firms maintain business-as-usual whatever disruptions occur to the benchmarks market.
Contact us to receive more information about RegFocus® BMR, the most advanced benchmarks validation solution on the market, which solves all regulatory obligations under the new Benchmarks Regulation.
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