On 15 February 2021, HM Treasury issued a consultation ‘Supporting the wind-down of critical benchmarks’.

The Financial Services Bill (FS Bill) amends the onshored Benchmarks Regulation (BMR) so that the FCA may manage a situation in which a critical benchmark has become or is at risk of becoming unrepresentative and it may be impractical or undesirable to restore its representativeness. In particular, the FCA may designate a benchmark that is unrepresentative or is at risk of becoming unrepresentative under Article 23A, with the result that its use (as defined in the BMR) is prohibited by virtue of Article 23B, except where legacy use is permitted by the FCA under Article 23C. The Article 23A benchmark may be published under a changed methodology, which may no longer be representative of the underlying market or economic reality that the benchmark sought to measure, using powers under Article 23D, in order to facilitate an orderly cessation. The FCA will exercise these powers where it considers it necessary to further its objectives of consumer protection and preserving market integrity.

Following the introduction of the FS Bill to Parliament, HM Treasury reports that a number of stakeholders have approached it suggesting that a supplementary legal ‘safe harbour’ should be incorporated for relevant legacy contracts. Stakeholders envisage that the safe harbour would be a useful contingency in reducing the potential risk of contractual uncertainty and disputes in respect of certain legacy contracts referencing or relying upon a benchmark that has been designated as an Article 23A benchmark, and that may be subject to a change in methodology under Article 23D.

HM Treasury states that stakeholders have suggested that a legal safe harbour would apply to legacy contracts (i.e. contracts written before an Article 23A designation is announced), and would have the following features:

• It would provide for legal certainty that references to a critical benchmark in certain legacy contracts should continue to be read as such following its designation as an Article 23A benchmark and any changes made to its methodology under Article 23D.
• It would provide that neither the designation of a critical benchmark as an Article 23A benchmark nor any change to the methodology under Article 23D would in itself be a basis for either a cause of action, liability or grounds for litigation between parties to contracts.

Given stakeholders’ comments HM Treasury has issued a consultation seeking views on whether a legal safe harbour could be a helpful supplement to the provisions inserted into the BMR by the FS Bill. The consultation looks to gain views on whether there is a case for introducing legislation and, if it is warranted, the design and scope of any such legislation.

The consultation closes on 15 March 2021.