If the European Benchmarks Regulation (BMR) can be thought of in terms of a journey, nearly two years after it came into force its final destination is still unclear.
As the end of last month, the European Commission (EC) proposed changes to the regulation as a result of a public consultation that was launched last October. However, far from bringing clarity to the situation the proposals raise more questions. There are two key elements to the EC’s announcement:
- If a critical benchmark, such as LIBOR, is due to close, the EC plans to be able to designate a replacement for use in financial instruments and contracts. The hope is that this will allow contracts that reference LIBOR to be able to continue after its withdrawal on December 21, 2021.
- The EC has effectively confirmed that third country index providers will need to comply with BMR within the existing deadline (i.e. by January 1, 2022)
Simon Green, Head of Compliance at RIMES, gives his thoughts: “This is a welcome intervention by the EC that should help ensure the stability of Europe’s markets following the withdrawal of LIBOR. However, the proposals demonstrate that BMR is still very much a work in progress and huge changes could still take place before the dust settles on the regulation.
“Specifically, when it comes to the LIBOR transition, market participants will soon want more clarity around which rate will replace LIBOR, as they need to make preparations for the forthcoming changes, in particular for multiple contract terms.
“The lack of an extension for third country benchmark providers is also cause for concern. There’s now precious little time for administrators to prepare. And given that all the evidence suggests few have started the necessary work to secure authorization under BMR, it’s possible that many of the third country benchmarks used today might be withdrawn from the European markets. It’s a worst-case scenario, but one that benchmark users need to be ready for.
“Fortunately, this isn’t an issue that firms need address alone. RIMES has developed a portfolio of tools to help benchmark users keep on top of the fast-changing benchmarks space. RegFocus BMR tools provide details of every BMR-compliant index and can also deliver inventory management and control and data enrichment capabilities. Using services like these, firms can insulate themselves from the turbulence caused by the Benchmarks Regulation and focus on what they do best: finding alpha.”
Contact us to receive more information about RegFocus® BMR, the most advanced benchmarks validation solution on the market, which solves all regulatory obligations under the new Benchmarks Regulation.
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