One of the main question marks hanging over the EU Benchmarks Regulation (BMR), is how it will affect the provision of third-benchmarks into the region. To date, there have been few if any signs that third-country administrators are taking the steps necessary to receive authorization under the BMR, meaning that their benchmarks would be unavailable for use in the EU from January 2020 (the date the regulatory transition period comes to an end). This would have a significant impact on a huge number of financial instruments and contracts in the region, and the firms that provide them.
It is therefore very welcome that the Dutch Authority for Financial Markets (AFM) has granted S&P DJI Netherlands authorization under BMR. The Amsterdam-based entity will act as an endorsing administrator for S&P DJI benchmarks administered outside the EU; enabling these benchmarks to be used in the region once the BMR transition period comes to an end.
This is, of course, great news for European firms that rely on S&P DJI benchmarks as it provides them some certainty over the future – something that has been on short supply since BMR came into force at the beginning of this year. It is also to be hoped that the action taken by S&P DJI marks a new phase in the BMR story and that other third-country administrators will soon seek authorization. BMR was created to make the European benchmarks landscape more robust and stable, but this will only be realized in full once there is a greater understanding of how third-country administrators will react to the Regulation.
In the meantime, benchmark users are advised to keep a watching brief. The benchmarks landscape will in all likelihood go through some dramatic changes once the transition period ends, particularly when it comes to third-country benchmarks. Firms are required to monitor these changes and have in place contingency benchmarks to replace those that are significantly altered, or withdrawn, as a result of the Regulation.
In the absence of detailed information on the status of third-country benchmarks (the ESMA Register only records administrators that have achieved authorization – there’s no granularity on applications-in-process or information on the level of specific benchmarks) the challenge at hand is essentially one of data management.
Firms need to be able to source accurate, real-time information on the benchmarks landscape to ensure the benchmarks they use are compliant. This is a significant piece of work that would be difficult and expensive for firms to carry out alone. That is why we recommend benchmark users partner with managed service providers such as RIMES. We have already conducted the work necessary to keep on top of the evolving benchmarks landscape and provide firms with an up-to-the-minute feed containing every compliant benchmark (including those from third-country administrators).
BMR has upended the benchmarks landscape. While S&P DJI’s move signals a positive move towards stability and clarity much is still unknown. By treating BMR compliance as a data management challenge, however, firms can go a long way to mitigate this uncertainty.
Contact us to receive more information about RegFocussm BMR, the most advanced benchmarks validation solution on the market which solves all regulatory obligations under the new Benchmarks Regulation.
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