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The Increasing Complexity of BMR

Towards the end of June, the UK’s Financial Conduct Authority (FCA) issued a consultation paper on UK implementation of the EU Benchmarks Regulation (BMR). BMR is the EU’s effort to standardize rules around benchmark administration to avoid the rate rigging scandals that have troubled the market in the past.

The FCA is using its consultation to get feedback on the changes to its Handbook that will result from the Regulation, as well as the deletions of and amendments to elements of existing UK laws that will be required. Significantly, however, the FCA is also proposing new national rules that are not covered by BMR. New proposals include:

  • From 2018, the Senior Managers and Certification Regime (SMCR) would be extended to all authorized firms
  • Administrators that are subject to the SMCR would need to give responsibility for benchmark activities to a senior manager
  • Supervised contributors would need to inform the FCA of the individual responsible for its benchmark contributions
  • Guidance on how the FCA would allow challenges from administrators that have been compelled to provide a benchmark
  • Requiring administrators and contributors to report the suspected abuse of benchmarks

The FCA’s consultation is important because it highlights the increasing complexity of the BMR regime, which comes into force in January 2018. What now seems clear is that the centrally mandated stipulations of the Regulation are only the beginning, and many National Competent Authorities for BMR (i.e. the national regulators of the EU member states) will add their own local flavors to the Regulation.

As the deadline to the start of BMR draws closer, therefore, compliance is becoming an increasingly difficult proposition. If benchmark administrators, contributors and users – which includes many buy-side firms – are to be ready for the Regulation, then a visionary new approach to compliance is required.

At RIMES, we believe the best approach to BMR compliance is to take compliance processes and technologies as a managed service. Firms that do so will be able to achieve compliance in much shorter timeframes and at a significantly lower cost when compared to in-house alternatives.

More importantly, managed services enable firms to avoid the penalties of non-compliance without having to allocate scare in-house resource and budget. The managed service approach to compliance also means that firms can focus on their core business activities – delivering value to clients – rather than on carrying out what are ultimately administrative functions. As such, managed compliance services are becoming a core competitive differentiator for buy-side firms.

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