There is now less than one month to go before the EU’s Benchmarks Regulation (BMR) comes into force. The Regulation was brought about in response to allegations of market manipulation, and is intended to strengthen confidence in the EU’s financial markets. BMR will fundamentally transform the compliance regime for firms that administer, contribute to, or use indices as benchmarks in financial instruments or contracts.
However, it seems that many firms have still to prepare fully for the new regime. According to Deloitte analysts, despite the fact that there are just weeks to go before BMR goes live, ‘there is much still to do, whether you are an existing EU or Third Country Administrator, a new entrant to benchmark Administration, or importantly, an EU Supervised Entity that uses financial benchmarks’.
Supervised Entities, of course, include buy-side firms such as asset managers, banks and insurance companies, a group that has been somewhat overlooked in coverage of BMR. Deloitte’s advice to benchmark Users is simple: ‘undertake in-depth analyses of [your] use of benchmarks, and engage with benchmark administrators, in order to determine the extent to which [you] can continue to rely upon these benchmarks’.
This is no small task. What is required involves large-scale data analysis and ongoing monitoring of all benchmarks the User relies on for its business. Moreover, firms must also prepare a list of backup benchmarks in case an existing benchmark is withdrawn from the market. This is a complex and time-consuming risk identification and management process that most firms will struggle to complete ahead of the January 1 deadline.
There is now a compelling case for buy-side firms to turn to RegTech solutions to help them meet their compliance requirements. A new generation of cloud-based regulatory services allow businesses to leverage economies of scale to achieve instant compliance through pre-tested, pre-configured managed services. Not only does this approach accelerate time-to-compliance, but it also lowers the total cost of ownership for user firms.
For BMR, firms should leverage services, such as those offered by RIMES, which provide full inventories of the benchmarks used at the firm, and the risk attached to these benchmarks. Firms can also use these services to gain access to lists of replacement benchmarks appropriate for their business requirements.
There is indeed much that needs to be done in the weeks remaining before BMR. However, firms that choose to take the managed services approach to compliance may find the road easier, and faster, than those opting for in-house development.
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