FCA published a consultation on the proposed policy framework for exercising two of its new powers under the Benchmarks Regulation, which will be introduced by the Financial Services Act 2021. These powers relate to the use of critical benchmarks that are being wound down. The consultation is another important step in the wind down of LIBOR. The comment period for this consultation ends on June 17, 2021, with FCA planning to publish a statement of policy and feedback statement in the third quarter of 2021.
This consultation sets out which factors the FCA thinks are relevant in deciding what legacy use of a permanently non-representative benchmark, such as any synthetic LIBOR, it will permit to continue. FCA reminds market participants that any permitted use of synthetic LIBOR would not be a permanent solution, so parties will need to continue their efforts to amend their contracts. The consultation also sets out the proposed approach of FCA to using its power to prohibit new use of a critical benchmark that is ending. This power is separate to the legacy use power and will be particularly relevant to USD LIBOR, given most settings will continue in their current form until mid-2023. FCA has been already clear that it supports the U.S. authorities’ approach of stopping new use of USD LIBOR by the end of this year. FCA will finalize its policies in light of the feedback received. It will then aim to consult in the third quarter on its proposed decisions on precisely what legacy use to allow for any synthetic sterling and yen LIBOR, and how it might restrict new use of LIBOR rates, including USD LIBOR. FCA intends to confirm its final decisions as soon as practicable in the fourth quarter of 2021. This two-stage consultation process is intended to give market participants the opportunity to engage on these important issues.
The consultation is another important step in the wind down of LIBOR. The consultation will interest users of critical benchmarks such as LIBOR, whether those users are regulated or unregulated. This includes banks and building societies, investment managers, life insurance and pension providers, mortgage lenders and intermediaries, corporates of all sizes, and consumers who have mortgages or other consumer loans that use critical benchmarks. It will also interest administrators of critical benchmarks.
Comment Due Date: June 17, 2021
Keywords: Europe, UK, Banking, Insurance, Securities, Pensions, Benchmarks Regulation, Legacy Contracts, LIBOR, Interest Rate Benchmarks, Benchmark Reforms, FCA
Previous ArticleUS President Signs Executive Order on Climate-Related Financial Risk
APRA issued a letter on the loss-absorbing capacity (LAC) requirements for domestic systemically important banks (D-SIBs) and published a discussion paper, along with the proposed the prudential standards on financial contingency planning (CPS 190) and resolution planning (CPS 900).
The European Commission (EC) launched a call for evidence, until March 18, 2022, as part of a comprehensive review of the macro-prudential rules for the banking sector under the Capital Requirements Regulation (CRR) and Directive (CRD IV).
The Financial Stability Board (FSB) published a report that sets out good practices for crisis management groups.
The Australian Prudential Regulation Authority (APRA) found that Heritage Bank Limited had incorrectly reported capital because of weaknesses in operational risk and compliance frameworks, although the bank did not breach minimum prudential capital ratios at any point and remains well-capitalized.
The Office of the Superintendent of Financial Institutions (OSFI) released the annual report for 2020-2021.
Through a letter addressed to the banking sector entities, the Office of the Superintendent of Financial Institutions (OSFI) announced deferral of the domestic implementation of the final Basel III reforms from the first to the second quarter of 2023.
EIOPA recently published a letter in which EC is informing the European Parliament and Council that it could not adopt the set of draft regulatory technical standards for disclosures under the Sustainable Finance Disclosure Regulation (SFDR) within the stipulated three-month period, given their length and technical detail.
The Financial Conduct Authority (FCA) published the third in a series of policy statements that set out rules to introduce the UK Investment Firm Prudential Regime (IFPR), which will take effect on January 01, 2022.
The Australian Prudential Regulation Authority (APRA) published, along with a summary of its response to the consultation feedback, an information paper that summarizes the finalized capital framework that is in line with the internationally agreed Basel III requirements for banks.
The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) issued a consultative report focusing on access to central counterparty (CCP) clearing and client-position portability.