The European Association of Co-operative Banks (EACB) welcomes this opportunity to provide feedback to the European Commission's proposal to amend the EU Benchmark Regulation (BMR).
We understand that the proposed Delegated Act is a sort of quick fix solution, which is important due to current critical events such as the cessation of LIBOR without an adequate replacement and the COVID-19 pandemic. However, we also provide some feedback in our position paper that goes over and above the Commission's targeted amendments and hope that these are at least considered within the wider BMR review. These include the functioning of the EU benchmarks register, the power of national competent authorities and clarification of definitions within the Regulation.
Regarding the proposed amendments, our position paper elaborates on the following main areas:-
1) Scope of the Delegated Act: There is a need for clarification of the material and territorial scope of the proposal as a minimum, but also of new contracts. The latter should be able to also make use of the statutory replacement rate if considered economically feasible in case of a trigger event. In addition, the scope of already established replacement rates should be clarified, e.g. statutory replacement for EONIA in legacy contracts is already established as €STR, and that €STR + 8.5bp spread is accepted as a replacement for “tough legacy contracts”;
2) Functioning of statutory replacement power in the Delegated Act: There are still many clarifications to be ironed out in this regard including applicability of trigger events to activate the statutory power, how the Commission will exercise its implementing powers, and the opt-in possibilities. We are of the view that the Commission should be empowered not only to define the replacement benchmark but also its application method (if necessary due to different characteristics and currencies/tenors of the replacement benchmark). The risk-free rate working groups should be able to identify different statutory replacement rates depending on the product type, but the Commission should have the power to intervene in situations where the working groups do not give clear recommendations on which rates should be used for which products. The general public should also be allowed (if possible) to provide feedback on the proposed alternative rate(s). Furthermore, it is important that the European Commission takes into account issues with the voluntary opt-in of contracts that already have a suitable fallback rate. The fact that a contract already provides a fallback clause does not necessarily mean it is free from litigation risk. We also would like to highlight that co-ordination is required when it comes to national measures by NCAs complementing the proposal, as well as, the risk of increased obligations on supervised entities which are beyond their capacity;
3) Proposed exemption of Spot Foreign Exchange Rate: The EACB suggests a wider definition within scope when it comes to spot foreign exchange rates.