From the LME Regulation Team
As we approach the end of 2017, it’s a good time to look forward to 2018 and the plethora of new regulation that will be coming into force. These regulations represent the last of the remedial work that was undertaken following the 2008 Financial Crisis. Within the first week of 2018 both MiFID II and the EU Benchmarks Regulation (EBR) will become law and these will be followed by the introduction of the General Data Protection Regulation (GDPR) in May. So what can we expect from these new laws and what are the implications for the global metals markets?
EU Benchmarks Regulation (EBR)
Ringing in the New Year will be the EBR, coming into force on 1 January 2018. The EBR introduces obligations on entities that are considered to be “administrators” of prices that are used to value financial instruments. The obligations that apply depend on a number of variables including:
The London Metal Exchange (LME) provides global reference prices for the metals traded on its market and as such, since the first iteration of the EBR, the LME has worked consistently to assess the potential impact on the LME, market participants, the wider value chain, price formation processes and publication arrangements. Whilst we will be required to introduce certain changes to our internal arrangements governing the price formation processes, there will be limited practical effect on the availability of our prices to the market.
We remain confident that we will be in full compliance with the EBR on 1 January 2018 and the global reliance placed on our official prices will remain in place with the same high levels of confidence that are enjoyed today. Before the start of last year’s base metals panel, which included analysis and debate on aluminium, copper, zinc and nickel, 28% of the audience thought nickel had the most upside potential for 2017. This grew to 50% after industry experts presented their analyses.
The EBR is, however, overshadowed by the colossal force that is MiFID II. Originally intended to come into force on 3 January 2017, its sheer size led the European regulators to delay its implementation until 3 January 2018. Some of the finer qualities of this legislative juggernaut were explored in our August LME Insight piece.
The LME has been working tirelessly on MiFID II since its first publication and we are using the remaining weeks of 2017 to fine tune our implementation plans and make sure all our ducks remain firmly aligned. This includes market-wide update calls, townhalls and consultations on policies, procedures and Rulebook changes. Further information on MiFID II, including links to our testing sites, can be found on our MiFID II-dedicated section of our website.
General Data Protection Regulation (GDPR)
GDPR debuts in May 2018 and is set to make considerable changes to the regulation of the retention and transmission of personal data. The new regulations will include rights for individuals to be ‘forgotten‘, which permits an individual to request erasure of their personal data. In addition, the consent that data processors require in order to use personal data will become more difficult to obtain and implied consent will no longer be sufficient.
The metals industry is a globally interconnected value chain and whilst the GDPR is a European Regulation, its extra-territorial scope is very broad. It catches data controllers and processors outside the EU whose activities relate to the offering of goods or services to EU data subjects. It is therefore important for all entities with any operations or clients within the EU to consider the potential impact of this legislation on their data privacy processes.
The challenges that 2018 will present to the financial markets, and those tasked with regulating and supervising them, are neither small in number nor insignificant in size. We remain cognisant of the potential risks the MiFID II go-live presents to our market in terms of unforeseen circumstances relating to the scale of the changes required. The finalisation of these regulatory measures is a reason to be optimistic: the post-crisis period has now largely concluded and we can all begin to refocus on what lies ahead.
The LME remains vigilant of all upcoming global regulatory developments relevant to our market and will continue to work with our members and the market in managing the impact of such changes. For more information please email Katy Hyams, the LME’s Senior Regulatory Counsel.