The European Commission today welcomed the agreement reached by the European Parliament and the Council on important amendments to EU rules on financial benchmarks. The Commission proposed these amendments on 24 July 2020 to ensure that the EU’s financial stability is not harmed when a widely used benchmark is phased out, as will soon be the case with the London Interbank Offered Rate (LIBOR). Benchmarks are an intrinsic part of financial markets: they are indices used, in particular, to price financial instruments and contracts (including household mortgages) or to measure the performance of an investment fund.
Today’s agreement on the proposed changes is very timely, as the UK’s Financial Conduct Authority – the supervisor of LIBOR – has announced in 2017 that it will stop supporting this benchmark at the end of 2021 and expects its cessation shortly thereafter. The agreed amendments to the Benchmark Regulation empower the Commission to designate a replacement benchmark that covers all references to a widely used reference rate that is phased out, such as LIBOR, when this is necessary to avoid disruption of the financial markets in the EU. Mairead McGuinness, Commissioner for Financial Services, Financial Stability and the Capital Markets Union said, “I welcome today’s swift agreement on financial benchmarks, which means that we will now not be faced with a legal vacuum when LIBOR disappears. This will ensure continuity in our financial system and protect our financial stability. Market participants should nonetheless continue preparations for the end of LIBOR.” Regarding other “-IBOR” rates, it is still in market participants’ best interests to actively prepare for the transition to alternative reference rates, as this offers them the greatest degree of control over the fate of contracts if a reference rate ceases to be published. The European Parliament and the Council also agreed today to postpone the entry into application of the rules on third country benchmarks until 31 December 2023, with the possibility of an extension by the Commission afterwards. This means that EU benchmark users will continue to have access to these benchmarks. The agreed amendments will apply immediately after publication in the Official Journal of the European Union.