The EU Council has adopted new Benchmark Regulation which will set common EU standards to combat the manipulation of financial benchmarks. The new bill will enter into force on the day after its publication in the Official Journal of the European Community (OJEU), to apply 18 months after it enters into force. Any lingering uncertainty is now removed: this new regulation is going to have a huge effect on both the sellers and buyers of benchmark data.
Watch a video explaining the potential consequences of benchmark manipulation.
For the buy-side it is essential that firms now conduct a full and comprehensive review of the benchmarks they use. Once the law comes into place, investment managers will need to be able to confirm all the benchmarks used in their portfolios are compliant with the EU Benchmark Regulation. It is likely this will prove to be an onerous task and will add to the already complex data management environment within buy-side firms. An immediate effect of the Benchmark Regulation will therefore likely be that buy-side firms will need to investigate new data compliance and management processes for their businesses. If managed in-house this will lead to an increase in the costs associated with data management.
Moreover, the regulation will require benchmark administrators to comply with a wide set of rules including around data transparency and reporting. These rules are essential in helping combat the fraudulent misuse of benchmarks, but it will also lead to an increase in costs on the sell-side. It remains to be seen whether these costs will be passed on to buy-side customers but it is prudent for buy-side firms to assume they will and to plan accordingly.
This vote is ushering in a new age of transparency, governance and oversight for the financial services industry. While this change is welcome in helping to combat fraud, we cannot ignore the consequences for buy-side firms in terms of the increased complexity and cost of managing benchmarks data.
To explain the implications and challenges associated with this new regulation, RIMES will be hosting a seminar in London on June 9. Agenda and Registration