With the implementation of the EU’s transformational Benchmarks Regulation (BMR) just months away, new analysis from leading lawyers has demonstrated the scale of the challenge the Regulation presents. Significantly, the analysis makes it clear that buy-side firms will also be greatly affected by the legislation, and not just benchmark administrators.
Perhaps of greatest concern to buy-side firms, is how the Regulation will affect the availability of benchmarks from third-country jurisdictions. While the Regulation makes provisions for the acceptability of third-country benchmarks that can prove equivalence with BMR, the latest analysis suggests that this might be hard to achieve, as no country’s regulatory regime comes close to the detail and reach of BMR.
Another key area of concern for buy-side firms stems from the way in which BMR defines a benchmark. According to BMR, a benchmark is essentially any index made available to the public that is used to price or value a financial instrument or contract. The legal analysis suggests that this will include indices used to price contracts, as well as indices used as a bespoke measure for a specific structured derivatives contract. Asset managers that use bespoke benchmarks could therefore be considered as benchmark administrators for the purposed of BMR, and regulated as such.
RIMES believes this latest analysis adds further weight to its contention that buy-side firms need to do more to prepare themselves for the January 2018 implementation date of BMR. The Regulation represents a challenge the scale of which has seldom been seen in the industry, and will demand that all firms change the way they source, verify and use benchmarks in their operations. Not only will buy-side firms need to keep track of what will be a fast-changing benchmarks landscape to ensure the indices they use are compliant, many will need to embed a wide range of new compliance measures themselves if they are to continue using bespoke benchmarks.
From RIMES’ perspective, the fastest, most comprehensive and lowest cost approach to solving these challenges is to use managed data services. These services will ensure that every benchmark entering the firms’ workflow is compliant with all relevant regulations, including BMR. Additionally, as managed services lower the cost of data management, they can help mitigate any increases in the price of benchmarks that will likely result as administrators look to recover some of the cost of their own compliance initiatives.
To help buy-side firms understand exactly what they need to do to prepare for BMR, RIMES is hosting its second Regulatory Seminar in London on June 7th. Agenda here.