The UK Treasury has in the past few days announced the result of equivalence determinations between EU and UK law, effective from the end of the Brexit transition period on 31/12/2020: The Equivalence Determinations for Financial Services and Miscellaneous Provisions (Amendment etc) (EU Exit) Regulations 2019 (legislation.gov.uk). The FCA has also released a statement: FCA responds to Treasury announcement on equivalence | FCA
- This move has the effect of enabling EU (technically EEA) benchmark administrators that are authorised or registered under EU2016/1011 (the EU benchmarks regulation) to have their benchmarks used within the UK, with only a notification required to the FCA, rather than a successful application for recognition or endorsement made and approved – a much more complex process.
- As a reminder, the UK government has announced that it plans to extend the transition period applicable to “third country” administrators, removing the obligation for them to become recognised within the UK, or their benchmarks endorsed by a UK administrator, until the end of 2025, and the EU Council has proposed the same for non-EU/EEA administrators currently subject to the EU BMR after 31/12/2021.
It is important to understand that these are separate, and that each applies to a separate group of benchmark administrators.
- The UK transition extension, to 31/12/2025, only applies to non-UK administrators. UK administrators whose indices or valuations are or become used as benchmarks, should in the former case already be, and in the latter will need to become registered or authorised under the UK BMR if they are not already on the EU registers (in which case their registration / authorisation automatically converts to the UK BMR.) The same applies to EU/EEA administrators not yet on the EU benchmarks register.
- The announcement of equivalence only applies to EU / EEA benchmark administrators. It does not cover non-EU/EEA administrators, even if they are already recognised or have benchmarks that are already endorsed under the EU benchmarks regulation by an EU/EEA administrator. Unfortunately therefore, most non-EU/EEA administrators will therefore still need to be separately recognised or their benchmarks endorsed, under both the UK and EU benchmarks regulations, after the respective transition periods end. (As at date of publication, the UK and EU transition periods both end on 31/12/2021. However, as noted above the UK Treasury proposes extending the UK transition to 31/12/2025, and the EU Council has proposed extending its transition to match the UK’s.)
- The equivalence announcement is not reciprocal: UK and other non-EU/EEA administrators will still need to apply for recognition under the EU BMR, or gain endorsement , before the end of the transition period on 31/12/2025.
Although the above news is fairly recent, the reaction of the non-EU/EEA administrators Moorgate Benchmarks is working with and talking to has been consistent: they are not planning to take advantage of the transition period extension; instead, they are continuing to seek recognition or endorsement – but they are arranging to benefit from the lower risk exposure their UK and EU-based legal representatives or endorsers now have, by negotiating lower service pricing from their legal representatives / endorsers.
This is a complex area and administrators should carefully consider how they respond. The opportunity to take advantage of the delay to the regulatory obligations has to be balanced against the opportunity regulated status gives administrators – and their competitors – to use that status as a marketing advantage. Moorgate Benchmarks is always happy to explain the regulatory situation and options to any administrator who wishes to get in touch.