ECB published an opinion (CON/2020/20) on the proposal for a regulation to amend the Benchmarks Regulation (2016/1011) regarding the exemption of certain third-country foreign-exchange benchmarks and the designation of replacement benchmarks for certain benchmarks in cessation. ECB, in its opinion, which is a response to a request from European Council, welcomes the main objective of the proposed regulation by empowering EC to adopt an Implementing Act to designate a statutory replacement rate for benchmarks that are undergoing a supervised process of orderly cessation. Where ECB recommends amendments to the proposed regulation, it has set out specific drafting proposals in a separate technical working document that has been appended to this opinion.
Upon the date of entry into force of the Commission Implementing Act, the replacement benchmark designated in that act would replace, by operation of law, all references to the benchmark that has ceased to be published in all financial contracts and instruments and measurements of the performance of an investment fund, subject to Benchmarks Regulation, where these contain no suitable fallback provisions. ECB also supports the proposed exemption, from Benchmarks Regulation, of foreign-exchange benchmarks administered from third countries that refer to a spot exchange rate of a third-country currency that is not freely convertible and that fulfil the other criteria set out in the proposed regulation. ECB notes that EC’s proposed power to designate a replacement rate is aimed primarily at contracts with EU-supervised entities that reference the LIBOR, as this benchmark may not be sustained after the end of 2021.
ECB does not view the proposed availability of a statutory replacement rate mechanism as an alternative to the transition from EURIBOR or LIBOR where a contract can feasibly be amended. ECB notes that, pursuant to the proposed regulation, when adopting the Implementing Act to designate a replacement benchmark, EC would be required to take into account, where available, the recommendation by an alternative reference rate working group operating under the auspices of the central bank responsible for the currency in which the interest rates of the replacement benchmark are denominated. ECB also notes that the proposed regulation does not set out the criteria for determining whether the fallback provisions in a contract referencing the benchmark in cessation are unsuitable and, hence, fall into the category of contracts to which the designated replacement rate would be applied, should ceasing publication of the benchmark be considered to significantly disrupt the functioning of financial markets in EU.
Related Link: Opinion (PDF)
Keywords: Europe, EU, Banking, Securities, Financial Benchmarks, LIBOR, Benchmark Reforms, Opinion, Third Country Benchmarks, EC, ECB
Previous ArticleEBA Provides Opinion on Definition of Credit Institution in CRR
ESAs published the final draft implementing technical standards on reporting of intra-group transactions and risk concentration of financial conglomerates subject to the supplementary supervision in EU.
EBA published the annual report on asset encumbrance of banks in EU.
FED updated the reporting form and instructions for the FR Y-9C report on consolidated financial statements for holding companies.
EBA issued a consultation paper on the guidelines on monitoring of the threshold and other procedural aspects of the establishment of intermediate EU parent undertakings, or IPUs, as laid down in the Capital Requirements Directive.
EC published Regulation 2021/25 that addresses amendments related to the financial reporting consequences of replacement of the existing interest rate benchmarks with alternative reference rates.
BIS published a bulletin, or a note, that examines the cyber threat landscape in the context of the pandemic and discusses policies to reduce risks to financial stability.
HM Treasury, also known as HMT, has updated the table containing the list of the equivalence decisions that came into effect in UK at the end of the transition period of its withdrawal from EU.
EBA published an erratum for technical package on phase 1 of the reporting framework 3.0.
APRA updated a frequently asked question (FAQ), for authorized deposit-taking institutions, on the measurement of credit risk weighted assets.
ECB published a letter from Andrea Enria, the Chair of the Supervisory Board of ECB, answering questions raised by the President of the Bundestag (the German federal parliament) on how ECB assesses the financial stability of the euro area in the context of the significant level of nonperforming loans.