While the EU Benchmarks Regulation (BMR) came into force in January this year, third-country benchmark administrators, including those in Asia Pacific (APAC) have been enjoying a period of grace which means they do not need to achieve authorization until January 2020.
With this period approaching its halfway point, a new study has found that many APAC benchmark administrators are still no closer to achieving compliance than they were a year ago. Of even greater concern, the report, which was co-authored by ASIFMA and Herbert Smith Freehills (HSF), suggests that come 2020 very few non-EU administrators will have successfully obtained registration for their benchmarks.
The report finds that continued uncertainty is acting as a barrier to administrators from APAC registering under BMR. Indeed, ASIFMA and HSF surveyed regional benchmark administrators and found that while 86% of administrators intend to register their benchmarks for use many are uncertain as to which of the registration options – equivalence, recognition and endorsement – is the most suitable. The report also highlights that third-country administrators continue to struggle to identify their EU Member State of reference, or engage a legal representative located within that state, required under the registration process.
The implications for the market of these findings are significant. A large number of benchmark users in the EU, such as asset managers, banks and insurance companies, employ APAC benchmarks in existing financial instruments and contracts. To avoid market disruption (and to meet their own requirements under BMR) benchmark users would be well advised to create a list of back-up benchmarks to use in the event existing benchmarks are withdrawn.
BMR is a critical Regulation that will over time make the EU benchmarks landscape more robust and reinforce confidence in financial markets. However, the disruption caused by the Regulation should not be underestimated, and benchmarks users should ensure they are able to react quickly and cost effectively to future change.
One way to do this is to build agility into core compliance processes. Rather than investing in inflexible and expensive in-house compliance tools and processes, firms should look to new RegTech offerings to give them rapid access to the capabilities they need at a low cost (as such services leverage economies of scale).
By investing in managed services specifically designed to keep on top of the fast-changing benchmarks landscape, users will be able to mitigate the challenges arising from third-country benchmark withdrawal as well as the many other challenges stemming from BMR.
Contact us to receive more information about RegFocussm BMR Control, the most advanced benchmarks validation solution on the market, which solves all regulatory obligations under the new Benchmarks Regulation: https://www.rimes.com/contact-us/
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