United Kingdom (and EU regulation)

Benchmarks Regulation: our proposed new powers, policy and decision-making

By Hannah Meakin (UK) and Hannah McAslan (UK) on November 19, 2020 Posted in Benchmarks – IBOR transition, United Kingdom

On 18 November 2020, the FCA published a new web page setting out its thinking on the considerations it will take into account when exercising its powers, as proposed under the Financial Services Bill (FS Bill), to ‘designate’ a critical benchmark and to impose changes to that benchmark.

The FCA is asking for views on its thinking in two documents:

Consultation on proposed policy with respect to the designation of benchmarks under new Article 23A. The FS Bill proposes the insertion of a new Article 23A into the onshored Benchmarks Regulation (BMR). Its provisions would grant the FCA the ability, in certain circumstances, to designate a critical benchmark as an Article 23A benchmark. Such designation would result in a general prohibition on use of the benchmark by supervised entities, as well as powers for the FCA to exempt some or all existing use of the benchmark from this general prohibition. It would also empower the FCA to impose requirements on the benchmark administrator relating to the way in which the benchmark is determined, including by amending the benchmark’s methodology. Under the new Article 23F(1)(b) of the BMR proposed in the FS Bill, the FCA is required to publish a Statement of Policy before it may designate any critical benchmark as an Article 23A benchmark and to have regard to it when exercising the power. Under Article 23A(5)(c), when the FCA gives notice that it has decided to designate a benchmark, it must explain how it has taken account of the relevant policy statement. The document outlines the factors the FCA proposes to take into consideration when deciding whether it should designate a critical benchmark, such as a currency-tenor (‘setting’) of LIBOR, as an Article 23A benchmark.
Consultation on proposed policy with respect to the exercise of the FCA’s powers under new Article 23D. The FS Bill proposes the insertion of a new Article 23D into the BMR. Its provisions would grant the FCA the ability, in certain circumstances, to impose requirements on the administrator of a critical benchmark designated under new Article 23A. Following such a designation, the requirements the FCA could impose on the benchmark administrator are set out in the proposed new Article 23D(2). These relate to the way in which the benchmark is determined, the rules of the benchmark or, where the benchmark is based on submissions from contributors, the benchmark’s code of conduct. New Article 23F(1)(d) of the BMR requires the FCA to prepare and publish a Statement of Policy on how it exercises its powers under new Article 23D, to which it must have regard when exercising the powers. Further, when it exercises the power, it is obliged to explain how it has taken account of the relevant policy statement. The purpose of the document is to consult on the proposed policy approach.

The FCA is asking for comments on both documents by 18 January 2021.