European Council adopted the Benchmark Regulation (2016/1011) amendments, which address the termination of financial benchmarks. The amendments have been made against the background of an expected phasing-out of the London Inter-Bank Offered Rate (LIBOR) by the end of 2021. The new rules are intended to reduce legal uncertainty and avoid risks to financial stability by making sure that a statutory replacement rate can be put in place by the time a systemically important benchmark is no longer in use. The adopted text of the regulation shall enter into force and apply from the day following that of its publication in the Official Journal of the European Union.
Under the new framework, EC will have the power to replace "critical benchmarks," which could affect the stability of financial markets in EU, and other relevant benchmarks, if their termination would result in a significant disruption in the functioning of financial markets in EU. EC will also be able to replace third-country benchmarks if their cessation would result in a significant disruption in the functioning of financial markets or pose a systemic risk for the financial system in the EU. The new rules also cover the replacement of a benchmark designated as critical in one member state, through national legislation.
In addition, the amendments to the Benchmark Regulation extend the transition period for the use of third-country benchmarks until the new rules governing the use of such benchmarks are applied. EU-supervised entities will be able to use third-country benchmarks until the end of 2023. EC may further extend this period until the end of 2025 in a delegated act to be adopted by June 15, 2023, if it provides evidence that this is necessary in a report to be presented by that time. The adopted text of the regulation will be signed on February 10 and is expected to be published in the Official Journal of the European Union on February 12.
Effective Date: OJ+1 Day
Keywords: Europe, EU, Banking, Securities, LIBOR, Interest Rate Benchmark, Benchmark Reforms, Systemic Risk, Benchmark Regulation, EC, European Regulation
Sam leads the quantitative research team within the CreditEdge™ research group. In this role, he develops novel risk and forecasting solutions for financial institutions while providing thought leadership on related trends in global financial markets.
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