Thomson Reuters’ decision to set up a subsidiary to provide financial benchmark services reflects not only the company’s strength in this area – it has grown its portfolio of benchmarks to 160 over the past 25 years – but also the wider industry’s desire to distance itself from benchmark scandals and rebuild trust as it moves into a new era of benchmark regulation.
The subsidiary, Thomson Reuters Benchmark Services Limited (TRBSL), is directed by Thomson Reuters executives including global head of indexes and reference rates, John Cooley; global head of reference rates Mark Beaumont; managing director of Financial, Peter Moss; and head of transaction services, Philip Wellard.
On the establishment of a subsidiary for benchmark services, Cooley says: “Creating TRBSL enables Thomson Reuters to provide benchmark services meeting the highest expectations of regulators and clients by placing a strong focus on this business through a separately governed, registered and capitalised entity. This is in line with a similar strategy adopted when Reuters Transaction Services Limited (RTSL) was established to manage transaction service platform activity. RTSL is also authorised and regulated by the Financial Conduct Authority [(FCA)] for a defined set of regulated activities.”
TRBSL is readying for the July 1, 2014 deadline for compliance with the International Organization of Securities Commissions’ (IOSCO) principles for benchmark administrators with a change programme that aims to lead to self declaration of compliance with the 19 principles set out by IOSCO. The IOSCO Principles for Financial Benchmarks were published in July 2013 in response to investigations by global regulators and include a framework for benchmark administrators to ensure the quality, integrity, continuity and reliability of benchmarks. From a benchmark user’s perspective, the principles enable objective judgments to be made on the appropriateness of using a particular benchmark as the administrator must make design and methodology documentation available.
Commenting on TRBSL’s commitment to the IOSCO principals, Cooley says: “The establishment of TRBSL enables us to demonstrate robust governance and oversight in alignment with IOSCO principles. TRBSL will produce a set of policy documents to evidence how it meets each of the 19 principles.”
TRBSL is regulated by the UK FCA and has been authorised for Thomson Reuters’ ongoing role as calculator of LIBOR on behalf of ICE Benchmark Administration, which has achieved FCA accreditation for the administration of LIBOR. While LIBOR is, to date, the only regulated benchmark, TRBSL says it will seek authorisation for other benchmarks as and when they are chosen for regulation in their own jurisdictions.
Cooley concludes: “With TRBSL, Thomson Reuters has reaffirmed its strategic commitment to ongoing investment in its benchmark activity, including acting as administrator and providing collection, calculation and publication services for administrators of other benchmarks. Many benchmark administrators are still in the process of reviewing their strategies in light of the additional costs of compliance and the risk of fines from regulatory authorities for non-compliance with administration obligations.”