UK Benchmark Regulator Consults on Exercise of New Powers under the Financial Services Bill

The U.K. Financial Conduct Authority has launched a consultation on its proposed policy for exercising the 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 the transition from LIBOR to risk free rates by the end of 2021. Responses to the consultations may be submitted until January 18, 2021.

The FCA's consultation comprises two consultation papers, which are:
 

1. A consultation paper on designating an unrepresentative benchmark using new powers under proposed Article 23A. The Financial Services Bill includes provisions granting 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. The consultation paper sets out the FCA's proposed approach to using this power and sets out the factors that the FCA would consider when deciding whether to designate a critical benchmark as an "Article 23A" benchmark.
2. A consultation paper requiring changes to a critical benchmark, including its methodology, using new powers under proposed Article 23D. The Financial Services Bill includes provisions giving the FCA powers, once it has designated a benchmark as an "Article 23A" benchmark, to impose requirements 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. This consultation paper sets out the FCA's proposed policy approach to imposing such requirements. The FCA intends to consult in Q2 2021 on how it intends to use these powers in respect of LIBOR. This consultation paper also seeks views on how best to conduct such a consultation. 

The FCA has also published a summary of the FCA's existing powers under the Benchmark Regulation and the proposed enhanced powers being established by the Financial Services Bill.

View the FCA's consultation on its proposed policy regarding the designation of an unrepresentative benchmark.

View the FCA's consultation on its proposed policy regarding requiring changes to a critical benchmark.

View the summary of FCA benchmark powers.

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