Emma RadmoreHM Treasury has launched a consultation on the case for additional legal protections for parties affected by the wind-down of a critical benchmark.
On 21 October 2020, the government introduced the Financial Services Bill to Parliament. This Bill includes amendments to the Benchmarks Regulation (BMR), which provide FCA with new and enhanced powers to oversee the orderly wind-down of critical benchmarks, such as LIBOR. In particular, FCA may designate a benchmark that is unrepresentative or is at risk of becoming unrepresentative, with the result that its use is prohibited except where legacy use is permitted by the FCA. Such 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 in order to facilitate an orderly cessation.
The consultation seeks to understand the extent to which there is uncertainty over the continued application of a critical benchmark to contracts where the FCA has exercised its power to direct a change in how the benchmark is determined under the Benchmarks Regulation, and the risk of associated litigation. Where respondents can evidence the need for further protections, the consultation invites responses on the appropriate scope for any legal protections and whether the administrator of a “designated” critical benchmark should also be afforded specific protections where it is acting in accordance with requirements imposed by the FCA.