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Is Benchmarks Regulation Coming to Canada?

In a globalized world, regulations can be like colds: spreading rapidly from jurisdiction to jurisdiction. Just such a thing appears to be happening in the world of financial benchmark regulation, where the Canadian securities regulator seems set to take a leaf out of the EU’s Benchmarks Regulation (BMR) book.

BMR, which came into force last year, sets a new global standard for the oversight of benchmark administration, contribution and use. Administrators are obliged to strengthen the methodologies behind their benchmarks and make them more transparent, while users are required to ensure they only use compliant benchmarks in financial instruments and contracts, and put in place mitigation plans in case critical benchmarks are withdrawn or changed materially.

Earlier this month, the Canadian Securities Administrators (CSA) signaled its intention to move toward a similar regime with the publication of a proposed new Rule: National Instrument 25-102. Currently open for comments, the Rule would bring about a comprehensive new regime for the designation and regulation of benchmarks and benchmark administrators. The Rule would also cover the regulation of benchmark contributors and users.

Significantly, the CSA will look to have the new Rule recognized as ‘equivalent’ under the BMR stipulations for third-country administrators. In fact, the two most important Canadian benchmarks, the Canadian Dollar Offered Rate (Cdor) and the Canadian Overnight Repo Rate Average (Corra), which are administered by Refinitiv Benchmarks Services (UK) Limited (RBSL), are already BMR compliant. However, the new rule will act as a ‘double lock’ on BMR compliance for these critical rates, ensuring they will remain available to users in the EU should the relationship with the current administrator change, while also extending equivalence to all other Canadian benchmarks.

This news is important for two reasons. First, it offers welcome evidence of significant movement in third-country jurisdictions to ensure recognition in the EU for when the current period of regulatory grace expires in 2022. Such movement will prove important to the smooth functioning of the market in the short- to medium-term. Second, the news suggests that we might be at the beginning of a trend towards the closer scrutiny of benchmarks worldwide.

What is also clear is that the international benchmarks landscape is in a state flux, and firms need to do all in their power to keep abreast of changing regulations and the impact these have on the benchmarks market and their operations. Here, working with RegTech service providers can provide real value, allowing firms to outsource the ‘heavy lifting’ of regulatory compliance to experts while leveraging economies of scale to keep the cost of compliance in check.

Contact us to receive more information about RegFocussm BMR, the most advanced benchmarks validation solution on the market, which solves all regulatory obligations under the new Benchmarks Regulation.

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