EC seeks to avoid 'disruptions' through amendments to EU benchmark reg'

On the 07/24/20 at 3:01PM


Adrien Paredes-Vanheule

The European Commission's amendments will empower it to pick a suitable replacement benchmark covering all references to a widely used reference rate being phased out.

The European Commission on Friday proposed to amend EU rules on financial benchmarks with a view to avoid any disruption in the EU financial stability and economy when a major market benchmark is phased out.

This refers obviously to the forthcoming cessation of the widely used London Interbank Offered Rate (Libor), falling into the category of interbank overnight rates. The UK Financial Conduct Authority said it will stop supporting this benchmark at the end of 2021 and expects its cessation shortly thereafter.

EC's amendments will empower it to pick a suitable 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. During its selection process, the Commission will take into account recommendations made by the relevant industry working groups, including the US Alternative Reference Rates Committee for the Libor or the Working Group on Euro Risk-Free Rates for the Euribor. EC fostered market players to agree on a permanent replacement rate for all new contracts whenever feasible. Besides, the amendments will also enable EU market participants to continue using currency benchmarks provided outside the EU.

Valdis Dombrovskis, executive vice-president, said: “EU users of Libor should continue their preparations for its cessation at the end of 2021. However, we recognise that some Libor contracts cannot be renegotiated in due time and that is why we are proposing new legal powers for the EU to replace the Libor with another benchmark. The European Commission stands ready to cooperate with the UK authorities to prepare for the impact of Libor's cessation.”

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