EC Proposes Amendments to Benchmarks Regulation
EC proposed amendments to the EU Benchmarks Regulation to address risks of the expected phase-out of LIBOR at the end of 2021. The proposal intends to create a new framework to have a statutory replacement rate in place by the time LIBOR is no longer in use. A statutory replacement rate is a rate that EC can designate by law. Such a rate would take the place of LIBOR in all contracts and financial instruments that mature after 2021. EC also proposed an amendment to allow EU users to continue using the currency benchmarks provided outside EU.
Benchmarks are indices used to price financial instruments (bonds, loans, derivatives) and contracts (including households' mortgages) or to measure the performance of an investment fund. If a critical benchmark ceases to be published, thousands of contracts existing at the date of cessation can be disrupted and could, ultimately, threaten financial stability. Thus, EC proposed to amend the Benchmarks Regulation, which will empower EC to designate a replacement benchmark that covers all references to a widely used reference rate that is phased out, such as LIBOR, when this is necessary to avoid disruption of the financial markets in EU. EC could replace any reference to LIBOR with a reference to a suitable replacement rate. In selecting this replacement rate, EC will take into account recommendations made by the relevant industry working groups, such as the US Alternative Reference Rates Committee for the LIBOR or the Working Group on Euro Risk-Free Rates for the EURIBOR.
The statutory replacement rate will only be available for financial contracts that reference, for example LIBOR, at the time this benchmark ceases to be published. The powers of EC to designate a statutory successor for LIBOR would only apply to contracts concluded by supervised entities, such as banks, investment firms, or asset managers, as only these contracts are governed by the Benchmarks Regulation. Contracts that do not involve supervised entities would not benefit from the statutory replacement rate. For such non-supervised entities, the laws of the member states would need to extend the scope of the harmonized statutory replacement rate to also cover non-supervised entities. At an appropriate time, EC might recommend that national laws supplement the harmonized replacement rate that applies to supervised entities. EC is also considering setting up a working group with member states to ensure the smooth transition of all LIBOR referencing contracts to the statutory replacement rate in a uniform way.
Related Links
Keywords: Europe, EU, Banking, Securities, Benchmarks Regulation, LIBORs, Financial Benchmarks, EC, FCA
Previous Article
ECB Seeks Feedback on Publication of Compounded €STR RatesRelated Articles
BSP Tackles Aspects of Lending and Islamic, Open & Sustainable Finance
The Central Bank of the Philippines (BSP) issued communications covering developments related to online lending platforms, open finance framework and roadmap, and on the expected regulations in the area sustainable finance.
US Agencies Issue Regulatory Updates, FDIC Launches Tech Sprint
The Board of Governors of the Federal Reserve System (FED) published the final rule that amends Regulation I to reduce the quarterly reporting burden for member banks by automating the application process for adjusting their subscriptions to the Federal Reserve Bank capital stock, except in the context of mergers.
EBA Issues Guide on Bank Resolvability, Consults on Transferability
The European Banking Authority (EBA) published its assessment of risks through the quarterly Risk Dashboard and the results of the Autumn edition of the Risk Assessment Questionnaire (RAQ).
MFSA Publishes CRD5 Updates and Supervisory Priorities for 2022
The Malta Financial Services Authority (MFSA) updated the guidelines on supervisory reporting requirements under the reporting framework 3.0.
HKMA Extends Repayment for Trade Facilities, Consults on Crypto-Assets
The Hong Kong Monetary Authority (HKMA) published a circular, along with the reporting form and instructions, for self-assessment, by authorized institutions, of compliance with the Code of Banking Practice 2021.
FCA Registers Securitization Repositories; PRA Issues 2022 Priorities
The Financial Conduct Authority (FCA) decided to register European DataWarehouse Ltd and SecRep Limited as securitization repositories under the UK Securitization Regulation, with effect from January 17, 2022.
EC Regulation Sets Out Methods for Measuring K-Factors Under IFR
The European Commission (EC) published the Delegated Regulation 2022/25, which supplements the Investment Firms Regulation (IFR or Regulation 2019/2033) with respect to the regulatory technical standards specifying the methods for measuring the K-factors referred to in Article 15 of the IFR.
BIS Studies How Platform Models Impact Financial Stability & Inclusion
The Bank of International Settlements (BIS) published a paper that assesses the ways in which platform-based business models can affect financial inclusion, competition, financial stability and consumer protection.
CBE Issues Additional Measures to Ease Disruptions from Pandemic
The Central Bank of Egypt (CBE) published a circular with instructions on emergency liquidity assistance to banks that are unable to meet their liquidity requirements.
ESAs Publish List of Financial Conglomerates for 2021
The European Supervisory Authorities (ESAs) published the list of identified financial conglomerates for 2021.
