Industry Updates

FCA introduces UK Benchmark Register in preparation for Brexit

George Geddes

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The Financial Conduct Authority (FCA) has introduced a UK Benchmark Register which will replace its European equivalent in the regulator's bid to prepare for a no-deal Brexit.

The European Securities and Markets Authority (ESMA) launched its Benchmark Register in January 2018, which lists the authorised benchmark administrators both inside and outside of the European Union.

The Register was introduced following the launch of the Benchmark Regulation (BMR), a set of guidelines which index providers must comply with to be authorised within the EU. However the implementation period was recently extended due to benchmark administrators not being ready.

Last week, the UK government extended Article 50 which means the UK will not be leaving the EU until at least 12 April for Parliament to either agree a deal or proposing a way forward with the EU leaders. In response to the likelihood of a no-deal Brexit, the FCA has launched a UK Benchmark Register, replicating that of the ESMA Register for the EU.

If the UK is to leave the EU without a deal, the FCA would not be able use the ESMA Register and is therefore eliminating this risk by introducing its own register before the UK's exit. The register will enable Benchmark users, such as ETF providers, to check if the underlying Benchmark is BMR compliant.

The FCA's UK Benchmark Register will include both benchmark administrators and third-country benchmarks.

Benchmark administrators are index providers which are recognised by the FCA in the UK or by other financial regulators outside of the UK.

Third-country Benchmarks are indices by index provided which are outside of the UK but are endorsed by a UK authorised or registered benchmark administrator.

One industry source said it was likely index providers had asked the FCA to introduce the equivalent in order to avoid losing business.

Also responding to the implementation of the BMR, ETF data provider Ultumus is developing its platform to improve the transparency and legitimacy of the underlying benchmark for each ETF.

The FCA says on exit day, it will temporarily copy the data from the ESMA register onto the UK Benchmarks Register for a period of two years.

Bernie Thurston, CEO at Ultumus, told ETF Stream: "The Benchmark Regulation is continuously replicating Brexit, as it faces further delays and there isn't a clear understanding of the underlying structure.

"Now Brexit has become a factor for Benchmark Registration, the UK and EU will be developing separate structures for which Ultumus has built a BMR flagging solution to track as these structures diverge."


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