Fixing Benchmarks: The Impact of EU Benchmark Regs on the Buy Side

Buy-side firms that blend benchmarks in-house and therefore qualify as administrators are watching EU regulations carefully.

“Given recent scandals, there was clearly a need for concrete rules on governance and calculation methodologies to restore market confidence.” — Agathi Pafili, senior regulatory policy advisor at the European Fund and Asset Management Association

European Union discussions around the regulation of financial benchmarks could lead to the publication of a final text within months. Buy-side firms — especially those whose in-house blending activities might qualify them as ‘benchmark administrators’ — are keeping an eye on developments.

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In May 2015, the European Parliament agreed a negotiating mandate for the regulation of financial benchmarks with the European Council and the Commission. The Commission's proposal, the Parliament's amendments, and the Council's common position will then be considered in a so-called ‘trialogue' meeting with representatives from the three institutions in order to negotiate an agreement or compromise.

The proposed regulation would implement more stringent supervision of benchmark providers and contributors, while also setting out stricter governance and control mechanisms and managing potential conflicts of interest. Benchmark calculation methodologies would need to be more transparent and robust, directly tackling the deficiencies highlighted by recent scandals.

This report includes commentary from Agathi Pafili of the European Fund and Asset Management Association; Siobhan Doyle, head of investment operations at Schroder Asset Management in London; Andrew Knowles, director and founder of Jigsaw Compliance Consultants; and Clare Vincent-Silk, managing director at asset management consultancy, Investit.

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