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
PRA published a statement that explains when to expect further information on the PRA approach to transposing the Capital Requirements Directive (CRD5), including its approach to revisions to the definition of capital for Pillar 2A.
SRB published the work program for 2021-2023, setting out a roadmap to further operationalize the Single Resolution Fund and to achieve robust resolvability of banks under its remit over the next three years.
EIOPA is consulting on the relevant ratios to be mandatorily disclosed by insurers and reinsurers falling within the scope of the Non-Financial Reporting Directive as well as on the methodologies to build these ratios.
US Agencies (FDIC, FED, and OCC) issued a joint statement encouraging banks to cease entering into new contracts that use USD LIBOR as a reference rate as soon as practicable and in any event by December 31, 2021, to facilitate an orderly LIBOR transition.
The Group of Central Bank Governors and Heads of Supervision (GHOS), the oversight body of BCBS, endorsed a coordinated approach to mitigate COVID-19 risks to the global banking system.
HM Treasury extended the consultation period on Phase II of the Future Regulatory Framework (FRF) Review, from January 19, 2021 to February 19, 2021.
ECB finalized guidance on the way it expects banks to prudently manage and transparently disclose climate and other environmental risks under the current prudential rules.
BCBS published a technical amendment to the capital treatment of securitizations of non-performing loans by banks.
PRA published the policy statement PS23/20 on the calculation of stressed value at risk (sVAR) and risks not in value at risk (RNIV) under the market risk framework.
BoE announced that the Data and Statistics Division is planning to move collection of statistical data to the BoE Electronic Data Submission (BEEDS) portal.