In a joint statement, EC, ECB Banking Supervision, EBA, and ESMA have strongly encouraged market participants to use the time remaining until the cessation or loss of representativeness of USD LIBOR, GBP LIBOR, JPY LIBOR, CHF LIBOR, and EUR LIBOR to substantially reduce their exposures to these rates. The statement also encourages market participants to cease using the 35 LIBOR settings, including USD LIBOR, as a reference rate in new contracts as soon as practicable and by December 31, 2021 at the latest. Participants should limit the use of any LIBOR setting published under a changed methodology and include robust fallback clauses nominating alternative rates in all contracts referencing LIBOR.
The statement emphasizes that the European authorities will monitor the situation and LIBOR exposures closely. The European legislative framework regulating financial benchmarks (Regulation 2016/10111) has been recently amended by granting EC the powers to facilitate LIBOR transition in EU. The amended Benchmarks Regulation has been applicable since February 13, 2021. The amended regulation grants EC the power to designate a rate that would replace all references to a benchmark that will no longer be published, like LIBOR, in all contracts governed by the law of a member state of the EU or in contracts entered into by European supervised entities governed by the law of a third country where that law does not provide for the orderly wind-down of a benchmark. The statement notes that significant reliance on any of the LIBOR settings at the time of their discontinuation or loss of representativeness may have an impact on the functioning of the financial system in Europe.
Keywords: Europe, EU, Banking, Securities, LIBOR, Benchmark Reforms, Interest Rate Benchmarks, LIBOR Transition, Benchmarks Regulation, EC, EBA, ESMA, ECB
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