When asset managers, banks and insurance firms return to work after the Christmas holidays, they will have to contend with two major regulations from the EU: The EU Benchmarks Regulation (BMR) and The Markets in Financial Instruments Directive II (MiFID II). These two pieces of legislation have been created in response to cases of market manipulation, and seek to beef up regulatory oversight and restore confidence in the EU’s financial markets.
In the EU, buy-side firms and national regulators are starting to take action to ensure they are ready for the new regulations, but it the same true of US firms? While these regulations have their origins in European law, they will impact, to a greater or lesser degree, all financial sector companies that do business in the region.
For instance, under BMR US benchmarks that have not been authorized, recognized or endorsed by EU regulators will be banned in the bloc. In effect, this means that US benchmark administrators will need to elevate their governance and controls systems to the standard of BMR if they are to continue providing benchmarks in the EU. Meanwhile, any US firm that uses EU benchmarks in financial instruments or contracts must prepare for the contingency that these are withdrawn due to non-compliance. US firms must therefore build an inventory of benchmarks as well as a list of equivalent, back-up benchmarks to ensure their operations are not affected by events in Europe.
The same is true of MiFID II: regardless of where a firm is based, the regulation will have a big impact on business. As this article makes clear, where a new global standard is set, it is far easier for firms to meet the highest global regulatory standards than to manage a range of different regional standards. Despite this, however, a study from Tabb Group suggests that nearly 25% US money managers do not expect to be affected by MiFID II.
If US buy-side firms want to avoid a severe regulatory shock next year, they need to act now. Both BMR and MiFID II are highly complex regulations, but there are ways of mitigating this complexity and achieving compliance in a light-touch, low-cost manner.
New RegTech cloud platforms from companies such as RIMES offer firms a catalogue of deployment-ready compliance services, processes and expertise. These services provide firms exactly what they need to understand their risk profile and address emerging compliance requirements such as market surveillance, benchmark inventory and benchmark substitution. As firms in the US and beyond feel the impact of European regulations, these managed services will provide an agile and effective means of response.
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