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BMR: “Confusion and (unintended) consequences”

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The EU Commission press release regarding the introduction of a new category of low-carbon benchmarks was remarkable in a number of ways.

First, in that the Commission intends to define the acceptable constituents of a group of benchmarks. Initially, this is in the low carbon area, but the implication is worrying.

Second, in admitting that the administrators of most critical benchmarks within the EU were (despite having years to prepare) still not ready for the full introduction of BMR at the end of 2019.

And third, for foreseeable “unforeseen consequences” in allowing all third country benchmarks an additional two years before their authorisation or registration is obligatory – lower protection for EU investors, and comparative advantage for third country benchmark administrators over EU administrators.

 A few clear takeaways emerge:

 •  Despite some confusion and much lobbying, there’s no transition extension for EU administrators of significant and non-significant benchmarks – if they aren’t authorised by the end of this year, their benchmarks cannot continue to be used in the EU.

•  EU benchmark users, who were expecting clarity through only being permitted to use regulated EU and non-EU benchmarks, are now going to have to expend additional energy on assessing the suitability of critical and non-EU benchmarks for the next two years, and on amending their “robust written plans” for handling benchmark cessations.

•  EU benchmark administrators are at a competitive disadvantage in that they will have to pay two years of compliance costs and regulators’ fees, whereas non-EU administrators can continue to sell their indices into the EU without doing so. (Although there are some competitive disadvantages to being unregulated.)

•  If an EU administrator can change domicile to a non-EU country they could take advantage of the extended transition for third country administrators..

Our CIO, Gareth Parker, is going to attempt to unravel the impact of these changes for third country administrators, and the implications of the UK Treasury’s announcement regarding “UK BMR”, in a webinar for one of our partner companies, Bovill. Details can be found here: http://goo.gl/jrwuC1 01 April 2019

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