The EU Benchmarks Regulation (BMR) came into force on January 1. Under this transformative Regulation, benchmark administrators in the EU are subject to a more stringent authorization and registration regime, comprising new governance, oversight and control requirements, as well as obligations concerning benchmark methodology.
Significantly, the requirements of BMR also extend to organizations in third-country jurisdictions that administer benchmarks used in the EU, and the details of how the rules will apply to them are only now becoming completely clear.
A new article from a panel of legal experts at Morrison & Foerster LLP highlights that while BMR will eventually apply to all third-country organizations that administer benchmarks used in the EU, there will be a period of transitional relief. Up until January 1, 2020 third-country administrators are allowed to administer both existing and new benchmarks in the EU without authorization or registration. This situation compares favorably to EU-based administrators, which only enjoy transitional relief on existing benchmarks (i.e. those put in place before June 30, 2016) – all new benchmarks will automatically fall under BMR.
However, the advice for third-country administrators from Morrison & Foerster LLP is unequivocal: “we would recommend that [third-country] administrators start giving consideration to whether an application for recognition or endorsement of relevant benchmark(s) should be made.”
RIMES agrees completely with this assessment: with just two years before transitional relief ends, third-country administrators have nothing to lose, and everything to gain, from seeking to clarify their future position in relation to BMR. Those organizations that seek approval or authorization under BMR the soonest will have more time in which to prepare for the end of the transition period.
At present, all indications suggest that many third-country administrators view BMR as primarily a European matter, and so have yet to consider whether they will apply for recognition of their benchmarks under the law. As we have discussed previously, this trend may create a fluid market dynamic, and buy-side firms that use benchmarks in financial instruments will need to work hard to stay on top of which EU and non-EU benchmarks are authorized under the Regulation.
As the full impact of BMR on global benchmarks comes into focus over the next two years, buy-side firms will need to stay on top of a fast-changing benchmarks market and adapt accordingly. Managed data service providers such as RIMES provide firms with a light-touch, low cost way of doing just that, and will provide an important competitive differentiator.
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