European Council Adopts Position on Amendments to Benchmark Regulation
EU ambassadors of member states agreed om the mandate of European Council for negotiations with the European Parliament on proposed amendments to the Benchmark Regulation (2016/1011). In July, EC had proposed to amend EU rules on financial benchmarks against the background of the transition to new reference rates on major capital markets, particularly in the backdrop of an expected phasing out of LIBOR by the end of 2021. European Council takes the view that the current rules that allow supervised entities in EU to make use of third-country benchmarks should continue to apply until the end of 2025 and not 2021, thus allowing smooth transition to a list of exempted benchmarks to be drawn up by EC.
In its negotiating mandate, European Council takes the view that the powers of EC should apply to a broader range of contracts and financial instruments that reference a benchmark than is proposed by EC. The expanded scope includes both financial contracts and instruments that are subject to the law of an EU member state and certain third-country law contracts. European Council also provides for the possible statutory replacement of benchmarks that do have a fallback provision for the cessation of a benchmark, but where the application of that clause would challenge financial stability and disrupt the market in a member state. On the basis of this negotiating mandate, the presidency will start negotiations with the European Parliament as soon as the Parliament has adopted its position.
At present, the Benchmark Regulation does not address the possibility of cessation of a critical benchmark. The aim of these amendments is to create a framework that would allow a statutory replacement rate to be in place by the time a systemically important benchmark such as LIBOR is no longer in use. This will reduce legal uncertainty regarding legacy contracts and avoid risks to financial stability. The new rules give EC the power to designate a statutory replacement rate to take the place of all references to a benchmark whose cessation would result in significant disruption to the functioning of financial markets in EU. When designating a statutory replacement rate, EC would have to take into account the recommendations of the dedicated working groups on replacement rates. In addition, the new rules ensure that EU benchmark users can, for the time being, continue to rely on third-country spot exchange rates to hedge the exchange-rate risk.
Related Links
Keywords: Europe, EU, Banking, Securities, Benchmarks Regulation, LIBOR, Financial Benchmarks, Benchmark Reforms, Interest Rate Benchmarks, EC, European Council
Previous Article
DNB Publishes Reporting Updates for Banks, Maintains CCyB at 0%Related Articles
OSFI Issues Phase2 Consultation on Climate Scenario Exercise for Banks
The Office of the Superintendent of Financial Institutions (OSFI) recently announced a consultation on the second phase of the Standardized Climate Scenario Exercise (SCSE) for banks and other financial institutions it regulates in Canada.
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
