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    HM Treasury Consults on Supporting Wind-down of Critical Benchmarks

    February 15, 2021

    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. 


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    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

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