The first day of October 2020 was marked by a public statement from The European Securities and Markets Authority (ESMA) on the impact of Brexit in relation to the BMR Register. The Register lists all benchmark administrators and third country benchmarks that are approved under the EU’s Benchmark Regulation (BMR). In its statement, ESMA provides details about how UK administered benchmarks, as well as third country benchmarks endorsed or recognized by the UK, will be treated after the Brexit transition period comes to an end.
While the statement provides a useful clarification for benchmark users, the end result is a bit like being given traffic directions when you have no sense of direction; while the instructions are on the face of it clear and precise, it doesn’t mean that you’ll have a trouble free journey to your destination.
The facts outlined by ESMA are as follows: when the UK withdrew from the EU on January 31, 2020 it officially became a third country, and the EU-UK Withdrawal Agreement entered into force. This agreement contains a Brexit transition period, during which Union laws remain applicable to the UK. This period ends on December 31, 2020. After that date, UK administrators will be deleted from the ESMA register, as BMR will no longer apply to them.
However, there is also a transitional period under BMR itself, which runs until December 31, 2021. Until that time, EU supervised entities are permitted to use a third country UK benchmark if the benchmark is already in use in the Union as a reference for financial instruments, financial contracts, or for measuring the performance of an investment fund. This includes UK benchmarks that will be deleted from the ESMA register at the end of January, as well UK benchmarks not authorized but in use at that time.
In the absence of the UK being given BMR equivalence status by the EU European Commission, UK benchmark administrators, and third country benchmarks previously endorsed or recognized in the UK, will have until the end of the BMR transitional period of December 31, 2021 to apply again for recognition or endorsement in the EU in order to be included in the ESMA register.
Simon Green, Head of Compliance at RIMES, comments: “If benchmark users were unclear about where they stood in relation to BMR compliance prior to ESMA’s statement, their level of comfort as regards meeting BMR rules in the next 15 months will not have increased. ESMA has introduced some clarity, but also additional complexity into what has frequently been regarded as a muddled picture. Users will now have to keep track of a new set of benchmark providers in order to ensure that they know what the administrator’s current status is, as well as what it is likely to be, with the added problems that political uncertainty adds to the equation.
“One way to manage this anxiety and uncertainty is to work with managed service providers such as RIMES. Through our RegFocus BMR family of products, we monitor the fast-changing benchmarks landscape on behalf of clients and provide tools for them to instantly check on the BMR status of all benchmarks they use. BMR is one of the most complex regulations out there, but with the right approach in place complying with the regulation need not be onerous.”
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