On May 17th the Council of the EU adopted the Benchmarks Regulation. The Regulation aims to restore trust in benchmarks and indices following a series of high-profile scandals; not least the manipulation of the Libor and Euribor benchmarks. Following adoption by the Council, the Benchmarks Regulation will be published in the Official Journal of the EU in June; entering into force the next day. Firms involved in the buying or selling of benchmarks then have just over eighteen months before the Regulations are applied.
Investment managers need to be aware that the EU Benchmarks Regulation will have a significant impact on their operations and start planning accordingly.
First, the Regulation imposes new rules for benchmark administrators around governance and controls, and the quality of input data and methodologies they use. It is possible that the likely costs associated with complying with these regulations may in future be built in to the price of benchmarks; pushing up costs for the buy-side.
Second, investment managers will need to conduct due-diligence to ensure that any benchmarks they use are compliant with the new Regulation: as they already have to operate in a highly complex data management environment, the Benchmarks Regulation will only add further to this complexity.
Finally, investment managers which carry out the in-house blending of benchmarks must be aware that these activities might mean they qualify as benchmark administrators; requiring that they too comply with the full obligations of the Regulation. This will be a significant challenge for already stretched in-house compliance teams.
At RIMES we are advising investment managers to review their data management capabilities to ensure they are ready for the changes the EU Benchmarks Regulations will bring about. As you might expect, we recommend that firms investigate the use of managed data services as a method of managing the increasing cost and complexity new regulations are bringing to benchmark data management. The scale and expertise provided by a fully managed data service frees firms from the burden and cost of managing growing volumes of data while concurrently ensuring compliance with emerging regulations.
To find out more about the incoming EU Benchmark Regulation, please come and join us at RIMES’ first EU Benchmark Regulation Seminar in London on June 9th. At the event we will be looking at key developments around the EU Benchmark Regulation and the impact it will have on buy-side firms.