FCA is consulting on policy proposals with respect to the new powers that would be granted to FCA under the Benchmarks Regulation, as amended by the Financial Services Bill introduced into the UK Parliament on October 21, 2020. One consultation paper seeks views on designating an unrepresentative benchmark using new powers under the proposed Article 23A to the Benchmarks Regulation. The other consultation paper seeks views on requiring changes to a critical benchmark, including its methodology, using new powers under proposed Article 23D of the Benchmarks Regulation. The consultation period on these policy proposals closes on January 18, 2021, post which FCA expects to publish the finalized approach in the form of Statements of Policy.
With respect to the consultation on designation of benchmarks under new Article 23A, the Financial Services Bill proposes the insertion of a new Article 23A into the Benchmarks Regulation. Its provisions would grant FCA the ability, in certain circumstances, to designate a critical benchmark as an Article 23A benchmark. Such designation would result in a general prohibition on use of the benchmark by supervised entities as well as powers for FCA to exempt some or all existing use of the benchmark from this general prohibition. It would also empower FCA to impose requirements on the benchmark administrator relating to the way in which the benchmark is determined, including by amending the benchmark’s methodology. In its consultation, FCA outlines the factors it proposes to take into consideration when deciding whether FCA should designate a critical benchmark, such as a currency-tenor (setting) of LIBOR, as an Article 23A benchmark.
With respect to the consultation on exercise of powers of FCA under new Article 23D, the Financial Services Bill proposes the insertion of a new Article 23D into the Benchmarks Regulation. Its provisions would grant FCA the ability, in certain circumstances, to impose requirements on the administrator of a critical benchmark designated under new Article 23A. A critical benchmark can be designated under new Article 23A where FCA has found that it is no longer representative of the market it is intended to measure, or its representativeness is at risk, and its representativeness will not be restored and maintained. Following such a designation, the requirements FCA could impose on the benchmark administrator are set out in the proposed new Article 23D(2). These relate to the way in which the benchmark is determined, the rules of the benchmark or, where the benchmark is based on submissions from contributors, the benchmark’s code of conduct. This FCA consultation is drafted with a focus on LIBOR. FCA will conduct a further consultation in relation to specific future decisions to exercise the Article 23D power in respect of LIBOR.
FCA has published these consultations based on the assumption that the Financial Services Bill will be passed in its current form. The exercise of these powers would be subject to a decision by ICE Benchmark Administration (IBA), the FCA-regulated and authorized administrator of LIBOR, to cease publication of LIBOR as the conclusion of its consultation. It would also be subject to the powers that have been proposed in the Financial Services Bill being enacted by the UK Parliament, feedback to policy proposals on how FCA may use its powers, and any subsequent consultations on decisions to use those powers once the policy is finalized. FCA plans to consult, in the second quarter of 2021, on its approach to the exercise of powers under the proposed Article 21A and Article 23C. FCA will conduct a further consultation in 2021 in relation to any decision to exercise the proposed Article 23D power in respect of LIBOR.
- Consultation on Designation of Benchmarks (PDF)
- Consultation on Changes to Benchmark (PDF)
- Financial Services Bill (PDF)
Comment Due Date: January 18, 2021
Keywords: Europe, UK, Banking, Securities, Benchmarks Regulation, Financial Services Bill, LIBOR, Interest Rate Benchmarks, Benchmark Reforms, Basel, FCA
Previous ArticleEU to Introduce Common Backstop to Single Resolution Fund by 2022
ECB published Guideline 2021/975, which amends Guideline ECB/2014/31, on the additional temporary measures relating to Eurosystem refinancing operations and eligibility of collateral.
EIOPA published a report, from the Consultative Expert Group on Digital Ethics, that sets out artificial intelligence governance principles for an ethical and trustworthy artificial intelligence in the insurance sector in EU.
HKMA published the seventh and final issue of the Regtech Watch series, which outlines the three-year roadmap of HKMA to integrate supervisory technology, or suptech, into its processes.
EC launched a targeted consultation to improve transparency and efficiency in the secondary markets for nonperforming loans (NPLs).
BIS, Danmarks Nationalbank, Central Bank of Iceland, Norges Bank, and Sveriges Riksbank launched an Innovation Hub in Stockholm, making this the fifth BIS Innovation Hub Center to be opened in the past two years.
FDITECH, the technology lab of FDIC, announced a tech sprint that is designed to explore new technologies and techniques that would help expand the capabilities of community banks to meet the needs of unbanked individuals and households.
EC released the EU Taxonomy Compass, which visually represents the contents of the EU Taxonomy starting with the EU Taxonomy Climate Delegated Act.
FDIC is seeking comments on a rule to amend the interagency guidelines for real estate lending policies—also known as the Real Estate Lending Standards.
EIOPA published its annual report, which sets out the work done in 2020 and indicates the planned work areas for the coming months.
The ESRB paper that presents an analytical framework that assesses and quantifies the potential impact of a bank failure on the real economy through the lending function.