Progress: Awaiting Parliament's position in 1st reading
Role | Committee | Rapporteur | Shadows |
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Lead | ECON | NAGTEGAAL Caroline ( Renew) | NIEDERMAYER Luděk ( EPP), FERNÁNDEZ Jonás ( S&D), MEUTHEN Jörg ( ID), NIINISTÖ Ville ( Verts/ALE), JAKI Patryk ( ECR), GUSMÃO José ( GUE/NGL) |
Committee Opinion | ITRE |
Lead committee dossier:
Subjects
Events
PURPOSE: to amend EU rules on financial benchmarks to address the problems arising from the likely cessation of certain widely used LIBOR rates in the EU.
PROPOSED ACT: Regulation of the European Parliament and of the Council.
ROLE OF THE EUROPEAN PARLIAMENT: the European Parliament decides in accordance with the ordinary legislative procedure and on an equal footing with the Council.
BACKGROUND: this proposal to amend Regulation (EU) 2016/1011 on EU Financial Benchmarks is based on the fact that one of the most important indices for the financial world, the London Interbank Offered Rate (LIBOR), is to be phased out by the end of 2021.
Financial benchmarks are indices by reference to which the amount payable under a financial instrument or a financial contract or the value of a financial instrument is determined. By setting out governance and data quality standards for benchmarks that are referenced in financial contracts, the Benchmark Regulation aims to strengthen the trust of capital market participants in indices used as benchmarks in the Union.
In light of the anticipated cessation of LIBOR after the end of 2021, supervised entities (such as banks, investment firms or asset managers) in the European Union shall be faced with legal uncertainty for hundreds of thousands of financial contracts. In order to avoid adverse consequences for the lending capacity of the European banking sector, early clarification as to the availability of a statutory replacement rate for use by supervised entities in all LIBOR referencing contracts that mature beyond the end of 2021 is necessary.
The fact that the Benchmarks Regulation does not provide for mechanisms to organise the orderly discontinuation of a systemically important benchmark in the Union could lead to heterogeneity in the solutions adopted by different Member States, which would lead to disruptions in the internal market.
CONTENT: this proposal amending the Financial Benchmarks Regulation introduces various tools to ensure that the phasing out of a widely used interbank rate does not unduly affect the ability of the banking sector to provide funding to EU companies and therefore jeopardise a key objective of the Capital Markets Union. By providing the necessary tools for a legally sound transition away from IBOR rates, this initiative would benefit retail customers who have taken out loans with IBOR rates as a benchmark.
Orderly termination of a financial benchmark
The proposed amendments to the provisions of the Benchmarks Regulation governing the winding down of a benchmark with systemic relevance in the Union are based on three main pillars:
1. The European Commission may designate a replacement rate if and when a benchmark whose cessation would result in significant disruption in the functioning of financial markets in the Union ceases to be published. In designating the statutory replacement rate, the European Commission shall take into account the recommendations of the risk free rate working groups operating under the auspices of the central banks responsible for the currency in which the rates of the benchmark in cessation are denominated.
2. The statutory replacement rate shall replace, by law, all references to the 'discontinuing benchmark' in all contracts concluded by an EU supervised entity. In order to benefit from the statutory replacement rate, contracts using the Cessation Benchmark should be ongoing at the time the designation enters into force; no contract concluded after the entry into force of the implementing act designating the statutory replacement rate would be allowed to use the statutory replacement rate as a reference.
3. For contracts not involving an EU supervised entity, Member State are encouraged to adopt national statutory replacement rates. At the appropriate time, the European Commission may issue a recommendation that the national statutory replacement rates will be identical to the statutory replacement rate that is designated for contracts involving EU supervised entities.
Exemption of specific foreign exchange benchmarks
The proposed amendments aim at exempting specified third country spot foreign exchange benchmarks from the scope of the Regulation where they fulfil certain criteria.
In order for the spot foreign exchange benchmark to qualify for exemption, it has to: (1) measure the spot exchange rate of a third-country currency that is not freely convertible and (2) be used by EU supervised entities, on a frequent, systematic and regular basis as settlement rate to calculate the pay-out under a currency forward or swap contract.
Furthermore, to enable the Commission to have all the necessary elements to designate exempted benchmarks, ESMA and the ECB are required to provide it with relevant information and views on specific exemption criteria.
Documents
- Committee report tabled for plenary, 1st reading/single reading: A9-0227/2020
- Committee report tabled for plenary, 1st reading/single reading: A9-0227/2020
- Amendments tabled in committee: PE660.111
- Committee draft report: PE658.859
- Document attached to the procedure: EUR-Lex
- Document attached to the procedure: SWD(2020)0142
- Document attached to the procedure: EUR-Lex
- Document attached to the procedure: SWD(2020)0143
- Legislative proposal published: COM(2020)0337
- Legislative proposal published: EUR-Lex
- Document attached to the procedure: EUR-Lex SWD(2020)0142
- Document attached to the procedure: EUR-Lex SWD(2020)0143
- Committee draft report: PE658.859
- Amendments tabled in committee: PE660.111
- Committee report tabled for plenary, 1st reading/single reading: A9-0227/2020
Amendments | Dossier |
40 |
2020/0154(COD)
2020/10/29
ECON
40 amendments...
Amendment 12 #
Proposal for a regulation Recital 1 (1) In order to hedge against exposure to foreign exchange rate volatility in currencies that are not readily convertible or subject to exchange controls, companies in the Union enter into non-deliverable currency forwards and swaps. Those instruments enable their users to protect against volatility of foreign currencies that are not readily convertible into a base currency, such as the dollar or the euro. The unavailability of foreign currency spot exchange rates to calculate the pay-outs due under currency forwards and swaps would have a negative effect on companies in the Union that export to emerging markets or hold assets in those markets, with consequent exposure to fluctuations of emerging market currencies. Following the expiration of the transitional period set out in paragraph
Amendment 13 #
Proposal for a regulation Recital 4 (4)
Amendment 14 #
Proposal for a regulation Recital 5 (5)
Amendment 15 #
Proposal for a regulation Recital 5 (5) To be able to provide for an orderly wind down of contracts that reference a widely used critical benchmark the cessation of which may result in negative consequences that produce significant disruption in the functioning of financial markets in the Union and where such contracts cannot be renegotiated to include a contractual fall-
Amendment 16 #
Proposal for a regulation Recital 8 (8) The Commission should exercise its implementing powers only in situations where it assesses that the cessation of a benchmark may result in negative consequences that produce significant disruption in the functioning of financial markets
Amendment 17 #
Proposal for a regulation Recital 10 (10) In exercising its implementing powers to designate a replacement benchmark, the Commission should take into account recommendations by private sector working groups operating under the auspices of the central bank responsible for the currency in which the interest rates of the replacement benchmark are denominated with regard to replacement rates to be used in existing financial instruments and contracts referencing the benchmark in cessation. The Commission should also take into account the recommendations of the relevant supervisory authority of the benchmark administrator as well as of ESMA. Those recommendations should be based on extensive public consultations and expert knowledge, and reflect benchmark users’ agreement about the most appropriate replacement rate for the interest rate benchmark in cessation.
Amendment 18 #
Amendment 19 #
Proposal for a regulation Article 1 – paragraph 1 – introductory part Regulation (EU) 2016/1011 Article 2 – paragraph 1 a (new) (1)
Amendment 20 #
Proposal for a regulation Article 1 – paragraph 1 – point b Regulation (EU) 2016/1011 Article 2 – paragraph 3 a (new) 3 a. In order to identify benchmarks meeting the requirements of paragraph 3, the Commission shall launch a public consultation by ...[two years after the date of entry into force of this Regulation).
Amendment 21 #
Proposal for a regulation Article 1 – paragraph 1 – point b Regulation (EU) 2016/1011 Article 2 – paragraph 4 4. The Commission shall adopt delegated acts in accordance with Article 49 to create and update as appropriate a list of foreign exchange benchmarks that fulfil the criteria laid down in paragraph 3. Competent authorities of supervised entities that use third country foreign exchange benchmarks that are designated by the Commission in accordance with paragraph 3 shall report to the Commission and to ESMA on the number of derivative contracts that use that foreign exchange benchmark for hedging against third country currency volatility at least every two years.
Amendment 22 #
Proposal for a regulation Article 1 – paragraph 1 – point b Regulation (EU) 2016/1011 Article 2 – paragraph 4 4.
Amendment 23 #
Proposal for a regulation Article 1 – paragraph 1 a (new) Regulation (EU) 2016/1011 Article 3 – paragraph 1 – point 22 a (new) Amendment 24 #
Proposal for a regulation Article 1 – paragraph 1 a (new) Regulation (EU) 2016/1011 Article 3 – paragraph 1 – point 24 – point a – point i (1 a) in Article 3, point i of point 24(a) is amended as follows: "(i) a trading venue as defined in point (24) of Article 4(1) of Directive 2014/65/EU or a trading venue in a third country for which the Commission has adopted an implementing decision that the legal and supervisory framework of that country is considered to have equivalent effect within the meaning of Article 28(4) of Regulation (EU) No 600/2014 of the European Parliament and of the Council (22) or Article 25(4) of Directive 2014/65/EU of the European Parliament and of the Council, or a regulated market considered to be equivalent under Article 2a of Regulation (EU) No 648/2012, but in each case only with reference to transaction data concerning financial instruments;
Amendment 25 #
Proposal for a regulation Article 1 – paragraph 2 – introductory part Regulation (EU) 2016/1011 Article 23a (2)
Amendment 26 #
Proposal for a regulation Article 1 – paragraph 2 Amendment 27 #
Proposal for a regulation Article 1 – paragraph 2 – introductory part Regulation (EU) 2016/1011 (2) the following Article 2
Amendment 28 #
Proposal for a regulation Article 1 – paragraph 2 Regulation (EU) 2016/1011 Article 2
Amendment 29 #
Proposal for a regulation Article 1 – paragraph 2 Regulation (EU) 2016/1011 Article 23a – paragraph 1 – introductory part "This Article shall apply to: (a) any contract or any financial instrument that is governed by the laws of one of the Member States and that references a benchmark; and (b) any contract that is subject to the law of a third country, but the parties to which are all established in the Union and where the law of that third country does not provide for an orderly wind down or cessation of a benchmark."
Amendment 30 #
Proposal for a regulation Article 1 – paragraph 2 (1) The Commission may designate
Amendment 31 #
Proposal for a regulation Article 1 – paragraph 2 Regulation (EU) 2016/1011 Article 23a – paragraph 1 – introductory part (1) The Commission may designate
Amendment 32 #
Proposal for a regulation Article 1 – paragraph 2 Regulation (EU) 2016/1011 Article 23a – paragraph 1 – introductory part (1) The Commission may designate a replacement benchmark for a benchmark that will cease to be published where the cessation of that publication may result in significant disruption in the functioning of financial markets and the real economy in the Union and provided that any of the following events has occurred:
Amendment 33 #
Proposal for a regulation Article 1 – paragraph 2 Regulation (EU) 2016/1011 Article 23a – paragraph 1 – point a (a) the competent authority for the administrator of that benchmark has issued a public statement, or has published information, in which it is announced that the capability of that benchmark to measure the underlying market or economic reality cannot be restored through the exercise of any of the remedial powers referred to in Article 23; Prior to making such an announcement, the NCA shall have applied the remedial powers of Article 23 and have determined that the powers in Article 23 are not sufficient to restore the benchmark.
Amendment 34 #
Proposal for a regulation Article 1 – paragraph 2 (a) the competent authority for the administrator of that benchmark has
Amendment 35 #
Proposal for a regulation Article 1 – paragraph 2 Regulation (EU) 2016/1011 Article 23a – paragraph 1 – point a (a) the competent authority for the administrator of that benchmark has issued a public statement, or has published information, in which it is announced that the capability of that benchmark to measure the underlying market or economic reality cannot be restored
Amendment 36 #
Proposal for a regulation Article 1 – paragraph 2 Regulation (EU) 2016/1011 Article 23a – paragraph 1 – point b (b) the administrator of a benchmark
Amendment 37 #
Proposal for a regulation Article 1 – paragraph 2 Regulation (EU) 2016/1011 Article 23a – paragraph 1 – point c (c) the competent authority for the administrator of a benchmark or any entity with insolvency or resolution authority over the administrator of that benchmark has
Amendment 38 #
Proposal for a regulation Article 1 – paragraph 2 Regulation (EU) 2016/1011 Article 23a – paragraph 1 – point (c a) (new) (c a) the competent authority withdraws or suspends the authorisation or registration of the benchmark administrator, provided that, at the time of the withdrawal or suspension there is no successor administrator that will continue to provide that benchmark.
Amendment 39 #
Proposal for a regulation Article 1 – paragraph 2 Regulatio (EU) 2016/1011 Article 23a – paragraph 2 – introductory part (2) The replacement benchmark shall, by operation of law, replace all references to the benchmark
Amendment 40 #
Proposal for a regulation Article 1 – paragraph 2 Regulation (EU) 2016/1011 Article 23a – paragraph 2 – point (a) (a) those
Amendment 41 #
Proposal for a regulation Article 1 – paragraph 2 Regulation (EU) 2016/1011 Article 23a – paragraph 2 – point b (b) those financial instruments, contracts or performance measurements contain
Amendment 42 #
Proposal for a regulation Article 1 – paragraph 2 Regulation (EU) 2016/1011 Article 23a – paragraph 2 – point (b a) (new) (b a) those financial instruments, contracts or performance measurements contain fallback rates and following conditions are simultaneously met: (i) the NCAs have conducted an assessment and determined that the given contractual fallback rate does not measure the underlying market and economic reality of the ceasing benchmark or its application would have an adverse impact on financial stability; (ii) one of the parties of the financial instruments, contracts or performance measurements affected has expressly objected to the application of the contractual fallback rate. In the event that one of the parties qualifies as a consumer according to Directive2008/48/EC on credit agreements for consumers at the relevant date in which the "Commission's” replacement benchmark shall apply, this condition is fulfilled if the consumer has not expressly asked for the application of the contractual fall back provision within three months; (iii) the parties have not agreed on a different new fallback rate.
Amendment 43 #
Proposal for a regulation Article 1 – paragraph 2 Regulation (EU) 2016/1011 Article 23a – paragraph 2 – point b a (new) (b a) A fallback provision shall not be deemed suitable where: a ) it does not cover the permanent cessation of a reference benchmark; b) any of the following conditions is fulfilled: (i) there is no fallback rate; (ii) the application of the fallback rate requires further consent from third parties; (iii) the fallback rate is calculated through quotes provided by third parties or fixes the last publication of the affected benchmark. c) the relevant authority has established that the application of the contractually agreed fallback provision does generally no longer, and with significant difference, reflect the underlying market or the economic reality that the ceasing benchmark is intended to measure, and could have an adverse impact on financial stability;
Amendment 44 #
Proposal for a regulation Article 1 – paragraph 2 Regulation (EU) 2016/1011 Article 23a – paragraph 2 – point b a (new) (b a) the contracting parties have not agreed on alternative fall-back provisions before the permanent cessation of the benchmark.
Amendment 45 #
Proposal for a regulation Article 1 – paragraph 2 Regulation (EU) 2016/1011 Article 23a – paragraph 3 (3) The Commission shall adopt implementing acts to designate
Amendment 46 #
Proposal for a regulation Article 1 – paragraph 2 Regulation (EU) 2016/1011 Article 23a – paragraph 3 a (new) (3 a) The implementing act referenced in paragraph 3 shall include the following: (i) the replacement benchmark(s); (ii) the spread adjustment, including the method for determining such spread adjustment, that is to be applied to the benchmark in cessation on the date of the replacement for each particular term to account for the effects of the transition or change from the benchmark to be wound down to the replacement benchmark; (iii) the corresponding essential conforming changes that are associated with and reasonably necessary for the use or application of a replacement benchmark; (iv) the relevant date from which the replacement benchmark(s) shall apply;
Amendment 47 #
Proposal for a regulation Article 1 – paragraph 2 Regulation (EU) 2016/1011 Article 23a – paragraph 4 a (new) (4 a) This Article shall apply to critical and significant benchmarks and to third- country benchmarks the cessation of which would lead to significant adverse impacts on market integrity, financial stability, consumers, the real economy, or the financing of households and businesses in one or more Member States.
Amendment 48 #
Proposal for a regulation Article 1 – paragraph 2 Regulation (EU) 2016/1011 Article 23a – paragraph 4 a (new) (4 a) This Article shall apply to critical interest rate benchmarks which were provided in the Union prior to 31 December 2020 and third country interest rate benchmarks.
Amendment 49 #
Proposal for a regulation Article 1 – paragraph 2 a (new) Regulation (EU) 2016/1011 Article 28 – paragraph 2 (2 a) Article 28(2) is replaced by the following: "2. Supervised entities other than an administrator as referred to in paragraph 1 that use a benchmark shall produce and maintain robust written plans setting out the actions that they would take in the
Amendment 50 #
Proposal for a regulation Article 1 – paragraph 2 a (new) Regulation (EU) 2016/1011 Article 29 – paragraph 1 a (new) (2 a) In Article 29, the following paragraph is inserted: "1a. A supervised entity may also use a replacement for a benchmark in the Union if the replacement is designated by the Commission in accordance with the procedure set out in Article 23a."
Amendment 51 #
Proposal for a regulation Article 1 – paragraph 2 b (new) Regulation (EU) 2016/1011 Article 37 a (new) (2 b) The following Article 37a is added: "Article 37a 1. The Commission shall be given the power to endorse a benchmark or family of benchmarks provided in a third country in accordance with the provisions of this Regulation. 2. The Commission shall sign together with the administrator a "benchmark statement" in accordance with Article 27. 3. At the request of Commission, ESMA shall submit a report on the third country benchmarks or family of benchmarks endorsed by the Commission. 4. The Commission shall endorse the benchmarks or family of benchmarks referred to in paragraph 1 of this Article by means of a delegated act in accordance with Article 49."
source: 660.111
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