The UK-based Baltic Exchange’s subsidiary, Baltic Exchange Information Services Ltd (BEISL), has been authorised by the country’s Financial Conduct Authority (FCA) as a ‘benchmark administrator’ under the EU’s Benchmark Regulation, even though the UK is no longer a member of the EU.
Under the terms of the country’s transition period – which is due to end on 31 December – EU regulations will continue to apply until then, but ShipInsight has been advised that the Baltic’s new status will survive that deadline, even in the event of no EU withdrawal agreement being finalised by that deadline.
In that scenario, “the FCA would become a ‘third country national competent authority’,” the Baltic Exchange’s communications adviser Bill Lines said, and it would either be ‘recognised’, granted ‘equivalent’ status or ‘endorsed’, under the terms of the EU Benchmark Regulation (BMR).
This was published in June 2016 in response to “serious cases of manipulation of interest rate benchmarks such as LIBOR and EURIBOR, as well as allegations that energy, oil and foreign exchange benchmarks have been manipulated,” according to the regulation’s preamble. It came into effect on 1 January 2018 and administrators of EU benchmarks had to apply for authorisation or registration by 1 January 2020.
In a statement last Friday (16 March), Baltic Exchange Chief Executive Mark Jackson said that achieving administrator status “ensures that financial institutions, including freight derivative traders using European clearing houses, will be able to continue using Baltic Exchange data for settlement purposes.”
Other users include time charterers, especially in the bulk and tanker trades, Mr Lines explained, and “anyone using Baltic Exchange information to settle trades.” Many of those users are in the EU so it needs to be regulated under EU law and the BMR creates a framework of standards that is relevant to ‘third countries’ beyond the EU’s borders, he said.
The BMR requires administrators of a range of benchmarks “to put in place appropriate governance arrangements, to have effective controls to ensure the integrity of input data and to maintain adequate records,” the Baltic Exchange statement says, and details of how it manages its benchmark indices are available on its website.
Meanwhile, the European Commission is considering responses to an eight-week consultation that closed on 6 December 2019 as part of a review of the BMR. The commission was tasked with presenting a report to the European Parliament by 1 April about the implementation of the BMR’s third-country benchmark regime.
According to some notes published by the law form Norton Rose Fulbright (NRF) when the consultation was launched last October, the commission has identified “certain shortcomings” in the equivalence, recognition and endorsement procedures and invited views on how to improve them. The consultation document itself did not include any proposed solutions, the NRF report noted.
• A timeline to BMR’s development has been published by the law firm Ashurst.