Featured Product

    EC Proposes to Amend Rules for Financial Benchmarks

    August 11, 2020

    EC published a proposal for a regulation that amends the Benchmarks Regulation (2016/1011) regarding the exemption of certain third-country foreign-exchange benchmarks and the designation of replacement benchmarks for certain benchmarks in cessation. This proposal aims to equip competent authorities with supervisory powers to ensure the orderly cessation of a critical benchmark, including power to mandate the continued provision of a critical benchmark using a different methodology or the provision replacement rate. It also aims to ensure the continued availability, to EU users, of third-country benchmarks for which no suitable alternative exists in EU. The proposal is open for feedback until October 06, 2020. EC also published an impact assessment report on the proposal.

    The proposed amendments related to orderly cessation of a financial benchmark are designed to reduce legal uncertainty and risks to financial stability. There are three main pillars to the proposed amendments of the Benchmarks Regulation provisions governing the winding down of a benchmark with systemic relevance in EU. First, the proposed Benchmarks Regulation amendments will introduce a statutory power, whereby EC designates a replacement rate if and when a benchmark whose cessation would result in significant disruption in the functioning of financial markets in the Union ceases to be published. The replacement of all references to the “benchmark in cessation” with a statutory replacement rate is designed to avoid, or at least minimize, costly litigation by providing legal certainty for all contracts involving an EU supervised entity. Second, the statutory replacement rate will, by operation of the law, replace all references to the “benchmark in cessation” in all contracts entered into by an EU supervised entity. Third, for contracts not involving an EU supervised entity, member state are encouraged to adopt national statutory replacement rates. 

    The proposed amendments related to specific foreign-exchange benchmarks aim to exempt specified third country spot foreign-exchange benchmarks from the scope of the Benchmarks Regulation where they fulfill certain criteria. The list of exemptions set out in Article 2 of the Benchmarks Regulation would be extended to include spot foreign-exchange benchmarks designated by EC. This would be accompanied by a provision specifying how EC may exercise its power and the criteria for exempting qualifying spot foreign exchange benchmarks from the scope of the Benchmarks Regulation. For the spot foreign-exchange benchmark to qualify for exemption, it has to measure the spot exchange rate of a third-country currency that is not freely convertible and it has to be used by EU supervised entities on a frequent, systematic, and regular basis as settlement rate to calculate the payout under a currency forward or swap contract. Furthermore, to enable EC to have all the necessary elements to designate exempted benchmarks, ESMA and ECB are required to provide it with relevant information and views on specific exemption criteria. Finally, to monitor appropriateness of the newly introduced exemption, competent authorities and supervised entities are required to periodically report to EC on the use of the exempted benchmarks by EU businesses and the changes of the balance sheets of supervised entities in terms of exposure to third country currency fluctuation.

    EC proposes to establish a monitoring program to evaluate whether proposed amendments deliver the intended results. This legislative proposal requires competent authorities of supervised entities using the replaced benchmark to monitor whether the replacement has minimized contract frustration or any other detrimental effects on economic growth and investments in EU. They shall report this to EC and to ESMA annually. This legislative proposal requires competent authorities of supervised entities that use third-country foreign-exchange benchmarks that are designated by EC as excluded from the scope of the Benchmarks Regulation to report to EC and ESMA on the number of derivative contracts that use that foreign-exchange benchmark for hedging against third-country currency volatility at least every two years.

     

    Related Link: Proposal and Related Documents

     

    Keywords: Europe, EU, Banking, Securities, Benchmark Regulation, Financial Benchmarks, Interest Rate Benchmarks, Foreign Exchange Benchmarks, IBOR, ESMA, EC

    Related Articles
    News

    ESAs Publish Reporting Templates for Financial Conglomerates

    ESAs published the final draft implementing technical standards on reporting of intra-group transactions and risk concentration of financial conglomerates subject to the supplementary supervision in EU.

    January 18, 2021 WebPage Regulatory News
    News

    EBA Publishes Report on Asset Encumbrance of Banks in EU

    EBA published the annual report on asset encumbrance of banks in EU.

    January 18, 2021 WebPage Regulatory News
    News

    US Agencies Publish Updates for Call Reports, FFIEC 101, and FR Y-9C

    FED updated the reporting form and instructions for the FR Y-9C report on consolidated financial statements for holding companies.

    January 15, 2021 WebPage Regulatory News
    News

    EBA Proposes Guidelines for Establishing Intermediate Parent Entities

    EBA issued a consultation paper on the guidelines on monitoring of the threshold and other procedural aspects of the establishment of intermediate EU parent undertakings, or IPUs, as laid down in the Capital Requirements Directive.

    January 15, 2021 WebPage Regulatory News
    News

    EC Adopts Financial Reporting Changes Arising from Benchmark Reforms

    EC published Regulation 2021/25 that addresses amendments related to the financial reporting consequences of replacement of the existing interest rate benchmarks with alternative reference rates.

    January 14, 2021 WebPage Regulatory News
    News

    BIS Bulletin Examines Key Elements of Policy Response to Cyber Risk

    BIS published a bulletin, or a note, that examines the cyber threat landscape in the context of the pandemic and discusses policies to reduce risks to financial stability.

    January 14, 2021 WebPage Regulatory News
    News

    HMT Updates List of Post-Brexit Equivalence Decisions in UK

    HM Treasury, also known as HMT, has updated the table containing the list of the equivalence decisions that came into effect in UK at the end of the transition period of its withdrawal from EU.

    January 14, 2021 WebPage Regulatory News
    News

    EBA Issues Erratum for Technical Package on Reporting Framework 3.0

    EBA published an erratum for technical package on phase 1 of the reporting framework 3.0.

    January 14, 2021 WebPage Regulatory News
    News

    APRA Publishes FAQ on Measurement of Credit Risk Weighted Assets

    APRA updated a frequently asked question (FAQ), for authorized deposit-taking institutions, on the measurement of credit risk weighted assets.

    January 14, 2021 WebPage Regulatory News
    News

    ECB Letter Sets Out Strategies to Address Issue of Nonperforming Loans

    ECB published a letter from Andrea Enria, the Chair of the Supervisory Board of ECB, answering questions raised by the President of the Bundestag (the German federal parliament) on how ECB assesses the financial stability of the euro area in the context of the significant level of nonperforming loans.

    January 14, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 6450