HM Treasury Consults on Supporting Wind-down of Critical Benchmarks
HM Treasury is inviting responses on the case for additional legal protection for parties affected by the wind-down of a critical benchmark. The Treasury seeks to understand the extent to which there is uncertainty over the continued application of a critical benchmark to contracts where FCA has exercised its power to direct a change in how the benchmark is determined under the Benchmarks Regulation and the risk of associated litigation. Where respondents can evidence the need for further protection, the consultation invites responses on the appropriate scope for any legal protection and whether the administrator of a “designated” critical benchmark should also be afforded specific protections where it is acting in accordance with the requirements imposed by FCA. This consultation will close on March 15, 2021.
In October 2020, the UK government had introduced the Financial Services Bill, which includes amendments to the Benchmarks Regulation. The amendments provided FCA with new and enhanced powers to oversee the orderly wind-down of critical benchmarks, such as LIBOR. The Financial Services Bill amends the Benchmarks Regulation to enable FCA to manage a situation in which a critical benchmark has become or is at risk of becoming unrepresentative and it may be impractical or undesirable to restore its representativeness. Since the introduction of the Financial Services Bill, a number of stakeholders have approached HM Treasury to suggest incorporating a supplementary legal "safe harbor" for relevant legacy contracts. These stakeholders envisage that a legal safe harbor would act as a helpful contingency in reducing the potential risk of contractual uncertainty and disputes in respect of certain legacy contracts referencing or relying on a benchmark that has been designated as an Article 23A benchmark and that may be subject to a change in methodology under Article 23D. HM Treasury is therefore seeking views on whether a legal safe harbor could be a helpful supplement to the provisions inserted into the Benchmarks Regulation by the Financial Services Bill.
HM Treasury is interested to understand the likely causes of action, potential liabilities, or grounds for litigation that would support the case for a legal safe harbor. Importantly, HM Treasury welcomes views on how these could inform the operative elements of a legal safe harbor. HM Treasury is interested in whether, and how, it could provide greater legal certainty for contracts that reference or rely on a benchmark that has been designated as an Article 23A benchmark that may be subject to a change in methodology under Article 23D. In addition to the possibility of providing users of a critical benchmark with a legal safe harbor, HM Treasury is also considering whether there is a case for providing legal protection for the administrator of a critical benchmark, in particular when it publishes a critical benchmark that has been designated as an Article 23A benchmark and may be subject to a change in methodology under Article 23D.
Related Links
Comment Due Date: March 15, 2021
Keywords: Europe, UK, Banking, Securities, Critical Benchmarks, Interest Rate Benchmark, LIBOR, Financial Services Bill, Benchmarks Regulation, Legacy Contracts, FCA, HM Treasury
Previous Article
FI Proposes Approach to Assess Pillar 2 Guidance for Swedish BanksRelated Articles
EC Regulation Sets Out Standards for Reporting and Disclosure of MREL
EC published the Implementing Regulation 2021/763 that lays down implementing technical standards for supervisory reporting and public disclosure of the minimum requirement for own funds and eligible liabilities (MREL).
EBA Report Notes Loan Origination Should Remain in Supervisory Focus
EBA published a report that examines the convergence of prudential supervisory practices in 2020 and offers conclusions of the EBA college monitoring activity.
APRA Decides to Standardize Submission Date for Quarterly Reporting
APRA announced the standardization of quarterly reporting due dates for authorized deposit-taking institutions.
ECB Working Group Publishes Recommendations on EURIBOR Fallbacks
The private sector working group of ECB on euro risk-free rates published the recommendations to address events that would trigger fallbacks in the Euro Interbank Offered Rate (EURIBOR)-related contracts, along with the €STR-based EURIBOR fallback rates (rates that could be used if a fallback is triggered).
Bundesbank Publishes Supporting Documentation for Reporting by Banks
Bundesbank published a list of "EntryPoints" that are accepted in its reporting system; the list provides taxonomy version and name of the module against each EntryPoint.
EBA Publishes Phase 1 of Reporting Framework 3.1
EBA published the phase 1 of its reporting framework 3.1, with the technical package covering the new reporting requirements for investment firms (under the implementing technical standards on investment firms reporting).
IOSCO Sees Support for Mandatory Sustainability Reporting
The Sustainable Finance Taskforce of IOSCO held two roundtables, with global stakeholders, on the IOSCO priorities to enhance the reliability, comparability, and consistency of sustainability-related disclosures and to collect views on the practical implementation of a global system architecture for these disclosures.
APRA to Finalize Capital Adequacy Standard Revisions by January 2022
Asia Pacific Australia Banking APS 111 Capital Adequacy Regulatory Capital Basel RBNZ APRA
ESMA Issues Guidelines on Outsourcing to Cloud Service Providers
ESMA published the final guidelines on outsourcing to cloud service providers.
EBA Publishes Data on Deposit Guarantee Schemes
EBA published annual data for two key concepts and indicators in the Deposit Guarantee Schemes (DGS) Directive—available financial means and covered deposits.
