On Monday, 30 November 2020, European legislators reached an agreement on the amendments to European Benchmarks Regulation (link), which were proposed by the European Commission in July 2020 (please see our update note). The trilogue agreement was announced in the press release issued by the European Parliament. Key points of the final agreement include:
- Mandatory replacement rate
The proposed amendment to BMR were largely motivated by the anticipated discontinuation of LIBOR as of end of 2021. In accordance with the trilogue agreement, the Commission will be able to propose a replacement rate to critical benchmarks, which are referenced in financial instruments and contracts with an average value of at least EUR 500 billion and cessation of which could impact the stability of financial markets in Europe. In addition, such replacement rate will be able to be proposed for benchmarks that have no or very few appropriate substitutes and cessation of which could have a significant and adverse impact on market stability. Finally, the Commission will be able to propose a replacement rate for third country benchmarks cessation of which would significantly disrupt the functioning of financial markets or pose a systemic risk for the financial system in the Union.
- Transitional period for third-country benchmarks
The co-legislators added provisions to the original Commission’s proposal extending the transitional period for third-country benchmarks until the end of 2023. The European Commission will be able to prolong this period until 31 December 2025 but such an extension will have to be duly motivated. This is a compromise position between the Council, which wanted an outright extension until the end of 2025 (akin to extension that is currently being legislated in the UK) and the European Parliament, which did not agree any such provision in its position.
The agreed text will now have to be formally approved by the Council and by the Parliament, which is expected to take place over the coming weeks. Following that, it will be published in the EU Official Journal.