Challenges and opportunities of the EU Benchmarks Regulation

The European Union’s response to benchmark-rigging scandals of recent years has a significantly broader scope than the regime currently established in the United Kingdom. It will be a demanding task for many firms to gain compliance in the short time available, report Tobias Sproehnle and Gareth Parker.

Tobias Sproehnle (tsproehnle@bovill.com) works as a consultant in the markets team at Bovill, providing regulatory advice to administrators, contributors and users of benchmarks. Gareth Parker (gparker@bovill.com) is a consultant on benchmark and index regulatory affairs. Concurrent with his role at Bovill, Gareth is chairman of the Bats Stock Exchange Index Advisory Committee, and consults within the index and ETF industries on index design, strategy and governance issues.

The LIBOR and foreign exchange ‘fixing’ scandals undermined the reputation of global financial markets. As a direct consequence, European regulators have focused upon corporate governance and culture as a means of improving standards of conduct and restoring trust in financial markets. In the United Kingdom, the administration of and submission of data to eight specified benchmarks became regulated activities for the first time by April 2015. A much more significant step has now come in the form of the European Union Regulation on Indices used as Benchmarks, commonly known as the Benchmarks Regulation or BMR. The regulation applies to administrators of, contributors of data to and users of benchmarks. It addresses a much wider population of benchmarks than are currently captured by the UK regime, and is, as always, complex and open to interpretation.