We’ve come to the end of another year. For the financial services sector, it’s a year that’s been marked by a range of far-reaching regulatory changes that are putting more pressure than ever on beleaguered compliance teams. Here’s our roundup of some of the most important regulatory events of 2018, as well as a brief look at what might lie ahead in 2019.
First up is the EU Benchmarks Regulation, which came into force at the beginning of this year. From January 1, benchmark administrators and contributors have had to comply with a new set of stringent guidelines around how benchmarks are created. Users, meanwhile, are now obliged to only use authorized benchmarks and to maintain a back-up list of replacement benchmarks to mitigate volatility.
However, as may be expected for a regulatory story that’s been beset by complexity from day one, things are not that clear-cut. At present, many of the obligations under BMR fall under a transitional arrangement, which is set to last for another year. The arrangements mean that many benchmark administrators, particularly those from third-countries, have yet to make preparations for when the BMR transitional period comes to an end on January 1, 2020.
Next year, we therefore expect to see benchmark administrators stepping up their efforts to achieve compliance with the Benchmarks Regulation. Benchmark users, meanwhile, will need to do more to ensure they’re able to keep pace with changes in the benchmarks landscape and have adequate plans in place to ensure the stability of the financial instruments and contracts that rely on benchmarks.
The beginning of this year saw another key legislation come into force: the EU’s Packaged Retail and Insurance-based Investment Products (PRIIPs) Delegated Regulation. The Regulation was designed to make the EU’s €10 trillion PRIIPs market more transparent; establishing a requirement for firms to prepare accurate, quality-assured Key Information Documents (KIDs) that can be used by retail investors to understand and compare the main features of the PRIIPs available to them.
However, the application of the PRIIPs Regulation has brought with it some challenges. For a start, there was the suggestion that the Regulation may be driving US firms out of the market, which many firms saw as a preferable alternative to compliance. For firms without that option, the PRIIPs Regulation has proved to be something of a moveable feast. Based on a consultation launched by the European Supervisory Authorities (ESAs), the KID framework is expected to change in the year ahead. As with BMR, the PRIIPs Regulation is a proving to be a journey rather than a onetime event.
This year we also saw the Markets Abuse Regulation (MAR) come of age. While the Regulation was passed more than two years ago, we are only now getting a view of the impact it has had on the market. In November, ESMA provided its first ever report on MAR sanctions. The report listed a significant number of criminal and administrative sanctions, highlighting the fact that MAR is in full force. Looking ahead to 2019, firms that have not yet readied their market surveillance capabilities to cope with the requirements of MAR might find themselves at odds with their regulator.
All of the regulatory challenges we’ve discussed have one thing in common: they can be addressed through agile, data-centered approaches to compliance. This year, RIMES’ focus has been on providing just such compliance services. Our RegTech portfolio is already helping a large number of clients address their regulatory obligations, and we believe these services will prove a significant competitive advantage come the New Year.
- RIMES and SOTERIA successfully complete initial product integration to create the first unified Market Manipulation and Insider Dealing Detection service
- [UPDATE] RIMES Technologies Corporation Response to COVID-19 (Coronavirus)
- Understanding ETF Risk Exposure in a Time of Crisis
- Index Rebalancing Schedules Are Being Rewritten – Here’s How to Keep Track
- BMR: What Firms Need to Know