UK Benchmark Regulator Publishes Policy on Exercising New Powers Under the Financial Services Bill

The U.K. Financial Conduct Authority has published Statements of Policy for exercising its new benchmark powers that are being introduced into U.K. law under the Financial Services Bill. Among other things, the Financial Services Bill includes potential enhanced powers for the FCA to wind-down a critical benchmark and deal with tough legacy contracts. The increased powers are being introduced in response to concerns and uncertainty about liability issues for industry participants related to the transition from LIBOR to risk free rates by the end of 2021.  The FCA has also announced today the dates for future cessation and unrepresentativeness for all LIBOR settings.

The Financial Services Bill provisions will grant the FCA the power to designate a critical benchmark (such as LIBOR) as an "Article 23A" benchmark if its representativeness is lost or at risk, unless representativeness can reasonably be restored and maintained and there are good reasons to do so. This designation would mean that use of the benchmark by supervised entities in relation to particular types of contracts would be prohibited, subject to certain exemptions. Once the FCA has designated a benchmark as an "Article 23A" benchmark, it would have powers to impose requirements (under Article 23D) on the way in which the benchmark is determined, the rules of the benchmark and the benchmark's code of conduct if it is based on submissions from contributors (referred to as a synthetic benchmark).

Following the FCA's recent consultation on its proposed approach to using these powers, the regulator has published Feedback Statements and Statements of Policy. The Feedback Statement for the Article 23A powers confirms that the FCA will consider the factors it proposed before exercising its powers, and will, in addition, consider the international coordination needed and the timing of its decision. The FCA is also expanding on considerations underlying the factors that it will consider. In the Article 23A Statement of Policy, the FCA confirms that the date of its decision may be different to the effective date of the decision and that once a decision is effective, it cannot withdraw it.

The Feedback Statement for the Article 23D powers confirms that the FCA will consider the factors it proposed and that it has taken on board the feedback and has expanded upon the considerations it will consider before exercising its powers.   
HM Treasury recently consulted on whether the Financial Services Bill should also provide a supplementary legal "safe harbour" for relevant legacy contracts. The consultation closed on March 15, 2021 and no feedback on the responses has been published to date.

View the FCA's Statement of Policy on the designation of benchmarks under Article 23A BMR.

View the FCA Feedback Statement: The exercise of the FCA’s powers under Article 23A BMR.

View the FCA's Statement of Policy on the exercise of the FCA’s powers under Article 23D BMR.

View the FCA Feedback Statement: The exercise of the FCA’s powers under Article 23D BMR.

View details of the FCA's announcement on LIBOR Panel Bank Submission Cessation Dates.

View details of HM Treasury's consultation on a legal safe harbor for tough legacy contracts.

View the FCA summary of the BMR and the proposed amendments under the Financial Services Bill.

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