From the outset, the Benchmarks Regulation (BMR) has been a tough nut for financial sector firms to crack. The most extensive benchmarks regulation in the world, it has placed unprecedented burdens on all firms involved in a benchmark’s lifecycle: administrators, contributors and users.
As consultancy firm PwC has outlined, the situation is only set to get more challenging. A nightmare scenario is playing out where the regulation is becoming ever more complex, just as regulatory oversight is increasing.
Some of this complexity stems from the fact that there are now effectively two sets of regulations running in tandem: the EU Benchmark’s Regulation and the UK regime that will come into play once the Brexit transition period ends. Exactly how these two regimes will diverge, remains to be seen.
What’s clear is that both laws are still works in progress. The EU, for example, is looking to put in place statutory replacements for firms to use in the event that a major benchmark is withdrawn. Meanwhile, the regime for third-country administrators is also still far from finalized, and there’s a possibility that the current transition period may be extended to 2025, as per the proposal by the European Council.
All this comes at a time when benchmarks have never been more important thanks to the explosive growth of Exchange-Traded Funds (ETFs), which looks to replicate the performance of indices. The sheer popularity of such funds is causing regulators to focus in on the area, and that means index providers will be coming under increasing scrutiny – particularly those that issue both indices and ETFs, a conflict of interest which, as PwC points out, may be looked on with scepticism by regulators.
Andrew Barnett, Global Head of Product Management at RIMES, provides some thoughts: “Firms are under pressure to comply with a ‘live’ regulation even as that regulation continues to evolve. What’s clear is that transparency into the indices used by firms has never been more important”.
“At RIMES, we can offer firms across the buy- and sell-side a database of 3.4 million benchmarks from more than 650 data partners. We also bring to bear 25 years’ experience of working with index providers and investment funds to ensure the quality, timeliness and accuracy of firms’ index universes”.
“Along with our award winning RegTech services for BMR, we can provide everything firms need to manage uncertainty and stay compliant with the regulation even as it continues to evolve. With RIMES, firms benefit from independent and experienced oversight across their entire index lifecycle.”
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