HM Treasury Publishes Policy Statement Amending Benchmarks Regulation
HM Treasury announced that the new Financial Services Bill has been introduced in the Parliament. This Bill includes amendments to the Benchmarks Regulation, which provide FCA with new and enhanced powers to oversee the orderly wind-down of critical benchmarks such as LIBOR. The Treasury also published a Policy Statement that addresses certain amendments to the Benchmarks Regulation to support LIBOR transition. The Policy Statement also emphasizes the importance of continued active transition away from LIBOR, ahead of the expected cessation of LIBOR after the end of 2021. FCA welcomed these developments, highlighting that this will help to maintain high standards and provide greater clarity to firms.
This latest development on LIBOR transition provides an overarching legal framework that equips FCA with new and enhanced powers to manage and direct the orderly wind-down of LIBOR. To cater to the contracts that face insurmountable barriers to transitioning away from LIBOR (tough legacy contracts), this framework includes the option for FCA to direct a change in the methodology of a critical benchmark and extend its publication for a limited time period. In such a scenario, use of that benchmark by UK supervised entities will be prohibited. However, to ensure an orderly wind-down of the benchmark for “tough legacy” contracts, FCA will have discretion to determine specific categories of contracts which will be exempt from this prohibition on use. HM Treasury and FCA are of the view that this exemption is intended for those contracts that genuinely have no realistic ability to be renegotiated or amended to transition to an alternative benchmark. Before exercising certain new powers, FCA will be required to issue statements of policy to inform the market about how it intends implement the legal framework set out under the Benchmarks Regulation. FCA will be able to engage with industry stakeholders and international counterparts, as appropriate, through this process.
The Financial Services Bill will ensure that the regulatory framework of UK continues to function effectively for UK after leaving EU. This Bill is the first step in shaping the post-Brexit regulatory framework for the financial services sector in UK. Measures in the Bill will:
- Enhance the prudential standards and promote financial stability by enabling the implementation of the remaining Basel III standards and a new prudential regime for investment firms and by giving the FCA the powers it needs to oversee an orderly transition away from the LIBOR benchmark
- Promote openness between the UK and international markets by simplifying the process to market overseas investment funds in the UK and delivering a Ministerial commitment to provide long-term access between the UK and Gibraltar for financial services firms
- Maintain an effective financial services regulatory framework and sound capital markets with a number of smaller measures, including measures to improve the functioning of the Packaged Retail and Insurance-based Investment Products Regulation and increase penalties for market abuse
Following its introduction to Parliament, the Bill will be subject to the usual processes of legislative scrutiny in both the House of Commons and the House of Lords. Once both Houses of Parliament have agreed, it will move forward to receive Royal Assent, at which point the Bill will become law. The timing of the Bill’s progression through Parliament is subject to parliamentary scheduling.
Related Links
Keywords: Europe, UK, Banking, Insurance, Securities, Benchmark Regulation, Financial Services Bill, FCA, HM Treasury
Previous Article
US Agencies Finalize Rule to Reduce Impact of Large Bank FailuresRelated Articles
EIOPA Report Analyzes Use and Impact of Long-Term Guarantee Measures
EIOPA submitted—to the European Parliament, the Council of the European Union, and EC—its 2020, fifth, and last annual report on long-term guarantee measures and measures on equity risk.
BIS, SNB, and SIX Announce Successful Completion of CBDC POC
The BIS Innovation Hub Swiss Centre, SNB, and the financial infrastructure operator SIX announced the successful completion of a joint proof-of-concept (PoC) experiment as part of the Project Helvetia.
EBA Sets Out Treatment of Certain Banking Book Positions Under FRTB
EBA published the final draft regulatory technical standards for calculation of own funds requirements for market risk, under the standardized and internal model approaches of the Fundamental Review of the Trading Book (FRTB) framework.
EIOPA Consults on Integrating Climate Change into SII Standard Formula
EIOPA published discussion paper on a methodology for the potential inclusion of climate change in the Solvency II (sometimes also written as SII) standard formula when calculating natural catastrophe underwriting risk.
EU Issues Corrigenda to Investment Firms Directive and Regulation
EU published, in the Official Journal of the European Union, corrigenda to the Directive and the Regulation on the prudential requirements and supervision of investment firms.
MAS Proposes Changes to Rules Arising from Banking Amendment Act
MAS proposed amendments to certain regulations, notices, and guidelines arising from the Banking (Amendment) Act 2020.
PRA to Elaborate on Approach to Transposition of CRD5 by Mid-December
PRA published a statement that explains when to expect further information on the PRA approach to transposing the Capital Requirements Directive (CRD5), including its approach to revisions to the definition of capital for Pillar 2A.
RBNZ Consults on Aspects of Insurance Act, Solvency Standards & IFRS17
RBNZ launched consultations on the scope of the Insurance Prudential Supervision Act (IPSA) 2010 and on the associated Insurance Solvency Standards.
SRB Sets Out Work Program for 2021-2023
SRB published the work program for 2021-2023, setting out a roadmap to further operationalize the Single Resolution Fund and to achieve robust resolvability of banks under its remit over the next three years.
EIOPA Consults on KPIs on Sustainability for Non-Financial Reporting
EIOPA is consulting on the relevant ratios to be mandatorily disclosed by insurers and reinsurers falling within the scope of the Non-Financial Reporting Directive as well as on the methodologies to build these ratios.
