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    ESMA Sets Out Impact of Brexit on Benchmarks Regulation

    October 01, 2020

    ESMA published a statement that sets out the impact of Brexit on the ESMA Register for benchmark administrators and third-country benchmarks under the Benchmarks Regulation. The statement highlights that, post Brexit transition, the existing UK administrators will be deleted from the ESMA Register, as, by then, the Benchmarks Regulation will no longer be applicable to the benchmark administrators in UK. ESMA also published a final report setting out the updated regulatory technical standards that contain provisions ensuring that the governance arrangements of benchmark administrators are sufficiently robust and the potential manipulation of benchmarks is minimized, through additional rules on the methodology of calculation and controls to ensure the integrity of the data. These draft standards result from the ESAs Review and are expected to be submitted, by October 01, 2020, to EC, which will have three months in which to approve or reject them.

    After the transition period for the withdrawal of UK from EU ends on December 31, 2020, UK administrators (that are included in the ESMA Register) will be deleted from the ESMA Register as the Benchmarks Regulation will by then no longer be applicable to the benchmark administrators in UK. During the Benchmarks Regulation transitional period until December 31, 2021, as defined in Article 51(4) of the Benchmarks Regulation, this change of the ESMA Register would not have an effect on the ability of EU27 supervised entities to use the benchmarks provided by those third-country UK administrators. During the Benchmarks Regulation transitional period, third-country benchmarks can still be used by supervised entities in EU if the benchmark is already used in EU as a reference for financial instruments, financial contracts, or for measuring the performance of an investment fund. Therefore, until December 31, 2021, EU supervised entities can use third-country UK benchmarks even if they are not included in the ESMA Register. This Benchmarks Regulation transitional provision would be applicable to the benchmarks provided by the UK administrators deleted from the ESMA Register because of Brexit.

    In the absence of an equivalence decision by EC, UK administrators will have until the end of the Benchmarks Regulation transitional period of December 31, 2021 to apply for recognition or endorsement in EU, for the benchmarks provided by these UK administrators to be included in the ESMA Register again. Similarly, if some UK third-country benchmarks were included in the ESMA Register before the end of the Brexit transition period following a recognition or an endorsement status granted by the UK, those third-country benchmarks will be deleted from the ESMA Register after the end of the Brexit transition period. The Benchmarks Regulation transitional period until December 31, 2021 is also applicable to these third-country benchmarks endorsed or recognized in the UK. Therefore, during the Benchmarks Regulation transitional period, this deletion from the ESMA Register would not have an effect on the ability of EU27 supervised entities to use those third-country benchmarks that were endorsed or recognized in the UK before the end of the Brexit transition period. In the absence of an equivalence decision by EC, these third-country benchmarks previously endorsed or recognized in the UK will have until the end of the Benchmarks Regulation transitional period of December 31, 2021 to apply again for recognition or endorsement in EU, to be included in the ESMA Register.

     

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    Keywords: Europe, EU, UK, Banking, Securities, Transition Period, Third Country Benchmarks, Regulatory Technical Standards, Benchmarks Regulation, ESMA

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