Relaxed U.S. Regulatory Climate Doesn’t Mean Benchmark Administrators Can Relax

Even though a recent survey of 200 asset management executives by financial services technology firm Koger Inc. found that regulatory enforcement in the US had decreased under the Trump Administration and the US regulatory climate is now more relaxed than the international climate, there is some evidence to the contrary.

U.S. regulatory climate

The US Commodity Futures Trading Commission (CFTC) just reached a $70 million settlement with Deutsche Bank Securities for attempted manipulation of an ISDA benchmark. This is the same field that has just been tightened up by European regulators with the Benchmarks Regulation (BMR), so the CFTC’s action shows it is keeping pace with an international standard.

The CFTC also, in December, announced an exemption from registration for swaps execution facilities (SEFs) – if they have been authorized by the EU as multi-lateral trading facilities or organized trading facilities. On the surface, any exemption might seem like the standards were being eased, but this action only allowed an exemption if a trading venue is already meeting tough European standards.

So, even if the regulatory climate seems looser to industry executives, that might not be really happening in fact. The same Koger survey, however, did find that 73% of its respondents do not expect looser regulatory requirements or enforcement to last, because a future US administration will turn around and strengthen oversight again. Just over half of the executives surveyed said they shifted their focus to reputational risk. Preventing reputational risk requires some of the same safeguards and data management improvements as regulatory compliance. Also, despite a supposed looser approach to enforcement, US regulators still are spending more time analyzing data, according to a Thomson Reuters report.

BMR, which took effect January 1, is raising issues that are little understood and poorly anticipated among asset managers. BMR contains “non-significant” benchmark guidelines that cast a wider net around new indexes or benchmarks that asset managers may create. These rules apply even to benchmarks that are for firms’ own internal use – not even for marketing to outside investors. The guidelines mean that asset managers creating internal indexes or benchmarks are acting as benchmark administrators, which means they must be authorized to do so. That’s another wrinkle that US firms should be aware of, especially if the CFTC is going to follow the EU’s lead when it comes to governing benchmark activity.

In this climate, not only will US firms have to be proactive about the authenticity of their benchmarks, but they will have to be aware of any activity by asset managers that qualifies as benchmarking. RIMES RegTech solutions, including RegFocussm BMR, help address the obligations set out in the regulation, and put users on solid footing should US regulatory oversight tighten again.


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