Last month, the European Commission (EC) adopted the Commission Delegated Regulations that make up the technical standards for the EU Benchmarks Regulation (BMR). This marks another important milestone in the implementation of the BMR regime, which tightens up governance and control of benchmark administrators while imposing new obligations on benchmark users. The goal of the Regulation is to restore confidence in EU markets following cases of rate rigging and market manipulation.
The technical standards adopted by the EC mirror those proposed by the European Securities and Markets Authority (ESMA) in March last year and set out what is expected of benchmark administrators and contributors. Unless the European Parliament or the Council of the European Union raise an objection, the Commission Delegated Regulations will come into effect 20 days after they are published in the Official Journal of the European Union.
This is an important development as it gives new certainty around how BMR will be implemented and what steps administrators and contributors can take to ensure compliance. Key areas outlined in the technical standards include the characteristics and procedures for administrators’ oversight function, the verification processes for contributors and the appropriateness of input data, the information benchmark administrators must provide about the benchmark and its methodology, and requirements around governance and controls.
Importantly, the technical standards also focus on the cooperation arrangements between ESMA and third-country national regulators as well as how third-country administrators can apply for authorization or registration under the BMR regime. This is an important step in enabling benchmarks administrators from outside the EU to keep their benchmarks in use in the bloc.
The adoption of the technical standards is welcome for providing more clarity around the implementation of BMR. With these standards in place, it is now critical that benchmark administrators quickly seek authorization or registration to minimize any potential disruption to the financial instruments and contacts that use them as a reference. While the EU has put in place a transitional regime that runs until 2020, the sooner markets can have confidence that key benchmarks will remain in place, the better.
For benchmark users, it is more important than ever to step up monitoring of the benchmarks market. The firming-up of technical standards may lead benchmark administrators to take decisive action around the future of their benchmarks and it is critical that users stay on top of any changes. It is incumbent on benchmark users to ensure the benchmarks they employ are BMR-compliant and they must also have a list of replacement benchmarks in place to ensure they are prepared for any cases of market withdrawal.
The time to act is now. The longer administrators, contributors and users wait the harder it will be to achieve compliance without interrupting business-as-usual.
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