On 24 July 2020, the European Commission published proposed targeted amendments to the EU Benchmarks Regulation (BMR) in light of the fact that the London Interbank Offered Rate (LIBOR) is expected to be phased out by the end of 2021.
As there will be contracts and financial instruments referencing LIBOR still in place at the date of its cessation, the Commission’s proposal seeks to create a new framework to have a statutory replacement rate in place by the time LIBOR is no longer in use. A statutory replacement rate is a rate that the Commission can designate by law. Such a rate would take the place of LIBOR in all contracts and financial instruments that mature after 2021.
The power of the Commission to designate a statutory successor for LIBOR would only apply to contracts concluded by supervised entities, such as banks and investment firms, as these contracts are governed by the BMR. Contracts that do not involve supervised entities will not benefit from the statutory replacement rate. For non-supervised entities, the laws of Member States would need to extend the scope of the harmonised statutory replacement rate to also cover non-supervised entities. The Commission may, at the appropriate time, recommend that national laws supplement the harmonised replacement rate that applies to supervised entities. The Commission is also considering setting up a working group with Member States to ensure a smooth transition of all LIBOR referencing contracts to the statutory replacement rate in a uniform way.