A number of countries are seeking to go down the equivalence route, however it’s a tight timeframe to get this in place before the 1st January 2020 when the BMR transition ends.
Legislation that needs to be enacted takes time and once in place the third country benchmark administrator needs to be registered and supervised in the third country before the European Commission will undertake the examination procedure. Information sharing needs to be set up between the regulator in the third country and ESMA.
In some cases a third country regulator may impose additional conditions on the benchmark administrator prior to providing its authorisation under the new legislative regime.
Furthermore, some legislation being introduced in third countries may only apply to certain benchmarks, leaving other benchmarks to seek alternate routes if they wish to become equivalent i.e. recognition or endorsement.
The steps necessary to meet equivalence are as follows;
Equivalence decision made by the European Commission using examination procedure Article 50(2)
Administrator must be authorised or registered and supervised in third country
Administrator notifies ESMA of its consent for its actual (or prospective) benchmarks to be used by supervised entities in EU
Commission decision either all administrators (clause 2) in the third country (meeting IOSCO Principles) or specific administrators (or specific benchmarks or family of benchmarks) (clause 3) where the third country legal framework and supervision ensures compliance with the IOSCO Principles
ESMA establishes cooperation arrangement with third country competent authorities, specifying at least:
Information sharing mechanism between ESMA and third country competent authority allowing ESMA access to all relevant information concerning the administrator
Mechanism for prompt notification by third country competent authority to ESMA of any breach of authorisation conditions or legislation by the third country administrator
Procedures for supervision coordination including on-site inspections
ESMA Technical Standards to determine minimum content of cooperation agreements
Article 31 details procedure for ESMA to withdraw third country administrator authorisation.
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