EU Policymakers Agree on Two Years Grace for BMR Compliance

Policymakers have agreed to give administrators of ‘critical’ EU and ‘non-critical’ non-EU benchmarks two more years to comply with the Benchmark Regulation.

EU policymakers have reportedly agreed to to give administrators of ‘critical’ interest rate and other widely used benchmarks until 31 December 2021 to comply with new rules for benchmarks.

The new rules, commonly know as BMR (Benchmark Regulation), were designed to avoid a repeat of the Libor and Euribor rigging scandals, and similar manipulation that could involve other high-profile interest rate benchmarks. Administrators were given until the end of 2019 to comply.

According to Reuters, policymakers have also backed giving administrators of ‘non-critical’ benchmarks administered from outside the EU (‘third-country benchmarks’) two more years to obtain the authorisations needed for their indexes continue being used by EU customers.

Although ‘non-critical’ third-country benchmarks are some of the most widely-used in Europe – such as the Hang Seng, Nikkei and multiple Asian indices – none of their administrators administered by providers outside the EU have so far been approved for use in the EU.

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Given a lack of readiness for the BMR, various associations, administrators and users of benchmarks have been warning of the prospect of market disruption if more time wasn’t given for BMR compliance.

In particular, a November 2018 paper published by ISDA (International Swaps and Derivatives Association), FIA (Futures Industry Association), GFMA (Global Financial Markets Association) and EMTA (Emerging Markets Traders Association) raised serious concerns about the lack of preparation.

Although formal approval of the deal is needed for the extension to take effect, it will avoid potential “chaos” in key areas like mortgage markets, noted Markus Ferber, a senior member of the European Parliament. “Now it is for benchmark administrators to make good use of that time to get all benchmarks into conformity with the regulation as soon as possible,” he said.

ISDA’s senior counsel for Europe Rick Sandilands said: “We welcome that European policymakers have taken action to extend the EU Benchmark Regulation transition period for both critical and third-country benchmarks.”

“The inclusion of non-EU benchmarks is important given the practical difficulties end users would have faced due to issues associated with the qualification process for third-country benchmarks,” he added.

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