This clause introduces a new provision, article 23G, into the benchmarks regulation. The clause makes provision about critical benchmarks provided for different currencies, or for different maturities or periods of time. This type of benchmark is known as an umbrella benchmark. LIBOR, for instance, is an umbrella benchmark. It is published in five different currencies over seven different time periods, ranging from overnight to up to one year. Those five currencies and seven time periods are paired to form 35 individual LIBOR settings, referred to in the legislation as “versions” of the benchmark. An example of a version of LIBOR would be three-month US dollar LIBOR.
Paragraph 3 of article 23G sets out that specified articles of the benchmarks regulation will apply to umbrella benchmarks as if each version were a separate critical benchmark. Paragraph 4 sets out how provisions under paragraph 3 of article 21, paragraphs 1(a) and 2 of article 22A and paragraph 1 of article 23E of the benchmarks regulation are modified in relation to an umbrella benchmark.
This clause sets out that the FCA will be able to exercise certain new powers to support the orderly wind-down of a critical benchmark in different ways in relation to different versions of an umbrella benchmark. It also clarifies the existing operation of certain provisions of the benchmarks regulation and how the FCA’s powers apply to versions of a benchmark. Those clarifications of the FCA’s powers will be of aid in supporting the orderly wind-down of a critical benchmark. For example, where panel banks begin to withdraw their submissions to some or all versions of LIBOR after the end of 2021, the different versions of LIBOR are likely to become unrepresentative, as we discussed earlier, or be at risk of becoming unrepresentative at different speeds.
It would be neither practicable nor appropriate for the FCA to exercise its new and existing powers uniformly across all versions of LIBOR simultaneously. For example, it is possible that if the robust input data necessary for an alternative methodology is not clearly available for certain versions of LIBOR, the FCA may not be able to exercise its power to direct a change in its methodology. In other cases, market participants may prefer to cease publication of some LIBOR versions. The FCA will consider evidence and views from market participants and global authorities in deciding the best course of action in respect of LIBOR versions.
It is critical to the wind-down of LIBOR, and future umbrella benchmarks, that the FCA can apply its powers under this legal framework to different versions of an umbrella benchmark at different times and in different ways. I therefore recommend that this clause stand part of the Bill.