Since the LIBOR scandal, the landscape for benchmarks and benchmark administrators has changed dramatically. With the end of 2021 tagged as the date at which LIBOR will be discontinued, the industry is in transition. But LIBOR is not the only benchmark, and scandal is not the only reason for improvement in the industry. Benchmark administration has a global presence with indices playing a key role in the US derivatives market, mortgage markets, and many other financial instruments.
Benchmark regulation – what is BMR?
Benchmark regulation – or BMR – came into effect across the EU in in January 2018. The benchmark regulation provides a unified definition of what a benchmark is and the indices that are used to measure investment performance. The FCA has taken on the responsibility for authorisation, registration and supervision of EU benchmark administrators (those firms who submit benchmark data), endorsement of third country benchmarks, and any relevant enforcement in the UK.
The regulation has the following objectives:
- Improving governance and controls for the benchmark administration process
- Improving firms’ handling of conflicts of interest to ensure they are avoided where it’s possible, and managed where it’s not
- Ensuring the quality of data that is submitted and that adequate controls are in place
- Protecting consumers and investors from any manipulative uses of benchmarks.
The regulation has also brought in a new regulated activity of ‘administering a benchmark’ which replaces the previous activity of ‘administering a specified benchmark’.
And of course, we are now in the SM&CR world. Benchmark administrators are subject to SM&CR as of December 2020.
IOSCO principles and benchmarks
Looking internationally, we also have to consider the principles for business as determined by the International Organisation of Securities Commissions (IOSCO). The principles create a framework used in financial markets to address benchmark-related activities, conflicts of interest, and transparency and openness. Firms that can demonstrate they’re acting in accordance with the 19 principles will be able to be ‘IOSCO certified’ which recognises the firm’s high standards of business in financial markets.
How Bovill helps benchmark administrators
We work with benchmark administrators across multiple jurisdictions and varying benchmarks. In this changing environment, we help newly authorised administrators and firms with a longstanding legacy in benchmark administration. We can assist with:
- Authorisation – we have expertise to guide new benchmark administrators, from concept to approval
- Global expansion – we are able to support firms who are moving into or developing their presence with a benchmark in a new jurisdiction from our offices in the UK, US, Hong Kong and Singapore
- Compliance support – we are able to support all benchmark administrators with their on-going compliance needs including compliance advice, thematic reviews and implementation support
- SM&CR – we have extensive experience in reviewing governance arrangements and preparing firms for the transition into the regime
- IOSCO certification – we are able to support firms with implementing and aligning documentation and processes in line with the IOSCO principles for business. We are also able to provide certification to firms to evidence adherence with the principles.