Benchmarks Regulation: our new powers, policy and decision-making

We are setting out the considerations we will take into account when exercising our powers, as provided under the Financial Services (FS) Act, to ‘designate’ a critical benchmark and to impose changes to that benchmark. This will inform how we use our new powers to help manage an orderly wind-down of critical benchmarks, such as LIBOR.

Benchmarks are used in a wide range of markets to help set prices, measure performance, or work out amounts payable under financial contracts. They are integral to the functioning of the financial markets.

Under the amendments to the Benchmarks Regulation in the FS Act, we have new powers. The FS Act requires us to publish Statements of Policy before exercising certain powers and we must have regard to them when exercising these powers. We said in June that we would engage with the market when developing these Statements of Policy.

We consulted on some of our proposals in November 2020 and have set out our final policy on:

We took account of responses to our engagement. See Article 23A and 23D consultation papers.  

In May 2021, we consulted on our proposed policy for using 2 of our other new powers and have now set out our final policy. These powers relate to the use of critical benchmarks that are being wound down:  

  • Permitting legacy use of an Article 23A benchmark under Article 23C
  • Restricting new use of a ceasing critical benchmark under Article 21A.  

We have also published a Feedback Statement.

In June 2021, we published a further consultation on our proposed decision under Article 23D, to require a change in methodology for 6 sterling and Japanese yen LIBOR settings. The consultation closed on 27 August 2021.

Following this consultation, we have published a draft Notice confirming our decision to use the Article 23D power after end-2021 in relation to these 6 sterling and Japanese yen LIBOR settings.  

We also issued Notices confirming our decisions to designate these 6 sterling and Japanese yen LIBOR settings as permanently unrepresentative Article 23A benchmarks, and to compel their continued publication (on the basis of a changed 'synthetic' methodology) from end-2021. 

In September 2021, we published a consultation on our proposed decisions under Article 23C and Article 21A. This consultation sets out specifically which legacy contracts would be permitted to use the “synthetic” sterling and Japanese yen LIBOR rates, and how we would restrict new use of the US dollar LIBOR settings that are continuing until mid-2023. We strongly encourage firms to respond to this consultation. We intend to confirm our final decisions in relation to these powers as soon as practicable in Q4.  

We may reissue a revised Statement of Policy in future if our policy changes for any of the powers set out above.

Who these documents apply to

We expect this work to be of interest to:

  • administrators of critical benchmarks 
  • contributors to critical benchmarks 
  • all users of critical benchmarks, both regulated and unregulated

Overview

We explain in our overview document where a Statement of Policy would be expected and the background and context to this work. 

Page updates

29/09/2021: Information added regarding statements of policy, notices, draft notice, feedback statement to CP21/15 and new CP21/29
22/07/2021: Information changed We plan to undertake a short consultation in Q3 of 2021