Negotiators from the European Parliament and the German Presidency of the EU Council reached a political agreement on Monday 30 November on the legislative proposal to ensure that the discontinuation of a widely used financial benchmark does not undermine the financial stability of the EU (see EUROPE 12535/14).
After an initial ‘trilogue’ held on 25 November, only one more negotiating meeting was needed to seal this agreement, the urgency of which was not lost on the co-legislators, since the amendment to the European regulation must be adopted by the end of the year
In the short term, the text aims to prepare the EU, from the end of 2021, for the disappearance of LIBOR (London Interbank Offered Rate), an interbank benchmark rate on the London Stock Exchange that serves as the indexation basis for thousands of financial contracts.
Currently, EU rules allow the authorities monitoring certain widely used benchmarks to prevent their abrupt termination. However, they do not address the termination of a so-called “critical benchmark”, such as LIBOR.
The final agreement therefore empowers the Commission to designate, by means of an implementing act, a replacement benchmark for those known as “Critically important”, which influence financial instruments and contracts with an average value of at least EUR 500 billion and whose termination could affect the stability of the financial markets of the EU.
However, the co-legislators also agreed to empower it to designate a replacement benchmark for those that have no, or very few, appropriate substitutes, whether classified as “critical” or not, and whose discontinuation would have a significant negative impacton financial stability - as the European Parliament would like (see EUROPE 12605/26).
The final text also takes up the EU Council’s proposal (see EUROPE 12575/7) to confer these powers on the Commission for indicators of third country benchmarks whose cessation would significantly disrupt the functioning of financial markets or pose a systemic risk to the EU financial system.
The agreement must now be validated within the two European institutions. (Original version in French by Marion Fontana)