On November 21, RIMES hosted its third Regulatory Seminar on the topic of the EU Benchmarks Regulation (BMR). In the third session of the day, Jochem Kimman, Senior Supervision Officer at AFM (the Dutch authority for the financial markets), outlined current developments with regard to the authorization of third-country benchmarks. Here is a summary of his talk.
Jochem started by recapping the routes available to third-country benchmark administrators to ensure their benchmarks can remain in use under BMR: equivalence, recognition, endorsement, or the transfer of administration to an EU administrator. At present, however, not one third-country administrator appears on ESMA’s official Register of BMR-compliant administrators (although 16 administrators from the UK are on the Register – important for when the UK leaves the EU and becomes a third-country administrator itself).
For Jochem there are several possible reasons for this lack of registered third-country administrators. First, the process is complex and time consuming. It may be that administrators have applied for authorization and that their applications have not yet been processed. Second, the uncertainty caused by Brexit may be slowing things down. The UK is the Member State of Reference for many third-country administrators, and they would require some clarity on its future position before proceeding. Finally, it could be that there is still a lack of awareness around the requirements of BMR.
Jochem then discussed the drawbacks of each of the routes to BMR compliance. Equivalence takes time and is a political decision. What’s more it is not expected to be widely applied until the end of 2019. Recognition, meanwhile, is difficult to set up. There’s little coverage as each administrator will require a different Member State of Reference.
Endorsement can be an option for administrators that are part of group with supervised entities in the EU. Other administrators will need to find a supervised entity in the EU wiling to endorse it. This approach also has a significant impact on benchmark administration, as the supervised entity becomes a part of the benchmark control framework – the same drawback applies if third-country administrators transfer their benchmarks to an EU administrator. With so many barriers in the way of authorization it is little wonder no administrators from third-country jurisdictions have made it onto the ESMA Register.
For Jochem, we have not yet reached a point of crisis, but administrators need to decide what steps they are going to take soon if they are to be on the Register by the end of 2019. Importantly, Jochem stressed the need for administrators to communicate with benchmark users so that the latter can keep up-to-date with which benchmarks are and which are not authorized under BMR. Benchmark users also need to ensure they have written plans in place outlining their course of action should a benchmark from a third-country be withdrawn, including for cases where there are no obvious substitute benchmarks.
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