Six trade groups suggest that plans to implement a new European benchmark approval regime be changed to allow third country indexes to be more easily used by investors within the European Union.
They include the International Securities and Derivatives Association (ISDA), the Asia Securities Industry and Financial Markets Association (ASIFMA), the European Association of Corporate Treasurers (EACT), EMTA, Inc., the Futures Industry Association (FIA) and the Global Foreign Exchange Division (GFXD) of the Global Financial Markets Association (GFMA)
The comments have been published in an updated set of recommendations in response to the European Commission’s (EC) latest consultation on reform of the EU Benchmarks Regulation (BMR).
Originally published in 2020, the industry recommendations have been developed to maintain the intended protections of the BMR but reduce the potential for uncertainty and disruption, as well as avoid putting EU investors at a competitive disadvantage to non-EU entities.
In May 2022, the EC launched a targeted consultation on the third-country benchmark regime under the BMR, with responses due today.
The industry advise is to narrow the scope of the BMR for both EU and third-country benchmarks.
An estimated three million benchmarks are in use globally, the majority of which pose no systemic risk.
However, a general prohibition on use within the BMR means none of these benchmarks can be used by EU investors unless they comply with the regulation.
A complex, costly and burdensome third-country benchmark regime has led to concerns that many overseas benchmarks are unlikely to qualify, barring them from use in the EU after the end of the transition period on December 31, 2023.
The associations note that prohibition of potentially large numbers of benchmarks would result in EU end users being unable to manage the risks that arise from their business activities or make informed investment decisions.
Given no other jurisdictions have implemented similarly expansive benchmark regimes, the current regulations also disadvantage EU retail and institutional investors.
To prevent this, the associations recommend reversing the general prohibition on use of third-country benchmarks, enabling benchmarks to be used in the EU unless specifically prohibited.
In addition, they asked that only those benchmarks deemed to pose a systemic threat to the EU should be subject to the full scope of the regulation.
As part of the proposals, a voluntary scheme would be introduced to allow all other benchmarks meeting the requirements to be labelled as BMR-compliant, acting as an incentive for administrators to meet EU standards on governance and transparency.
