With the EU Benchmarks Regulation (BMR) in force since the 1st January, all firms including asset managers, banks and insurance companies that use indices as benchmarks in financial instruments or contracts must look to ensure compliance immediately. The cost of not doing so is severe: firms face fines of up to a tenth of revenues for breaches of the Regulation.
BMR is the EU’s response to cases of rate-rigging and manipulation in the bloc. It aims to make the methodologies of benchmarks more transparent while beefing up governance and control. Firms which are considered Users under BMR are required to ensure their benchmarks are compliant with the Regulation.
Additionally, Users must put in place a list of substitute benchmarks to mitigate the consequences of market withdrawal of a given benchmark. Some firms that blend benchmarks might also be considered Administrators for the purposes of the Regulation.
Despite the importance of BMR compliance, there is real concern that firms are overlooking the regulation. According to to regulatory consultants Bovill, such firms might number in the hundreds. The consultancy suggests that the current focus on MiFID II might be monopolizing the time of firms’ compliance departments and putting their operations at real risk of non-compliance with the BMR.
This is a view backed-up by other market experts. Michael Huertas, of lawyers Baker McKenzie, for example, has highlighted the lack of preparedness for participants in the securities financing transaction (SFT) space; again citing MiFID II as the reason firms are overlooking BMR and other key regulatory developments.
Time has run out on BMR, and firms must now ensure they are compliant with the Regulation. The time and cost of developing in-house compliance systems and processes mean that this approach now carries with it some risk. The two-year period of grace being given to benchmark Administrators under BMR does not apply to Users; these firms must act now.
For that reason, firms should look to deploy compliance solutions that can be integrated into their businesses immediately, with low impact, and at a low cost. Cloud-based RegTech solutions such as RIMES RegFocus BMR take the complexity out of BMR compliance, seamlessly adding the capabilities and processes firms need to ensure compliance while maintaining business-as-usual.
To receive more information about RegFocus® BMR, the most advanced benchmarks validation solution on the market which solves all regulatory obligations under the new Benchmarks Regulation, please contact us.
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