Contents
LIBOR cessation: FCA speech
The FCA has published a speech given by Edwin Schooling Latter, FCA Director of Markets and Wholesale Policy, on being ready for life without LIBOR from the end of 2021. Highlights from the speech include:
- 85% of the uncleared UK derivatives market are ready for the end of LIBOR as 12,500 firms sign the ISDA protocol;
- the ICE Benchmark Administration consultation on the proposed end-dates for LIBOR has now closed, opening the way to determining and announcing the future path for all five LIBOR currencies simultaneously; and
- users of LIBOR should press ahead with transition plans – in their new business and their legacy LIBOR books.
IBOR fallback rates for derivatives come into effect: ISDA statement
The International Swaps and Derivatives Association (ISDA) has confirmed that new fallback rates for derivatives contracts linked to key interbank offered rates (IBORs) came into effect on 25 January 2021. The fallbacks will be incorporated into all new derivatives contracts that reference the 2006 ISDA Definitions from that date. They will also be included in legacy non-cleared derivatives if the counterparties have bilaterally agreed to include them or both have adhered to the IBOR Fallbacks Protocol.
The fallbacks cover Australia’s Bank Bill Swap Rate, the Canadian Dollar Offered Rate, euro LIBOR, EURIBOR, HIBOR, the Singapore dollar Swap Offer Rate, sterling LIBOR, Swiss franc LIBOR, the Thai baht Interest Rate Fixing, TIBOR, euroyen TIBOR, yen LIBOR and US dollar LIBOR.
Read more in our separate briefing: Are we there yet? Looking ahead now that ISDA's IBOR fallback supplement and protocol have gone live.
CCP Recovery and Resolution Regulation
Regulation (EU) 2021/23 on a framework for the recovery and resolution of central counterparties (CCPs) (CCP Recovery and Resolution Regulation) has been published in the Official Journal of the EU (OJ).
The CCP Recovery and Resolution Regulation will establish a legislative framework for the recovery and resolution of CCPs operating in the EU. The aim of the framework is to reduce the risk of a CCP failing and to establish procedures for the resolution of a failed CCP to limit impact on the financial system and on public funds.
The Regulation will enter into force on 11 February 2021. It will apply from 12 August 2022, except for:
- certain provisions in Articles 9 and 10 concerning recovery plans, which will apply from 12 February 2022;
- certain provisions in Articles 9 and 20 concerning the use of CCP's prefunded dedicated own resources and the compensation of non-defaulting clearing members, which will apply from 12 February 2023;
- amendments to Article 54 of the Markets in Financial Instruments Regulation (MiFIR) made by the Regulation are deemed to have applied retrospectively from 4 July 2020; and
- amendments to the European Market Infrastructure Regulation (EMIR) concerning the introduction of new Article 13a of EMIR, on the replacement of interest rate benchmarks in legacy trades, will apply from 11 February 2021.
BMR: Council of EU text of proposed amending Regulation to address benchmark cessation risks and exempt certain third-country FX benchmarks
The Council of the EU has published the text of the proposed Regulation amending the Benchmarks Regulation (BMR) as regards the exemption of certain third-country foreign exchange (FX) benchmarks and the designation of replacement benchmarks for certain benchmarks in cessation. The Council is expected to adopt the Regulation based on this text shortly, after which it will be published in the OJ.
CSDR: Delegated Regulation on RTS on settlement discipline postponed
Commission Delegated Regulation (EU) 2021/70 amending Delegated Regulation (EU) 2018/1229, which supplements the Central Securities Depositories Regulation (CSDR) with regard to regulatory technical standards (RTS) on settlement discipline, has been published in the OJ. The new Delegated Regulation postpones the entry into force of Delegated Regulation 2018/1229 from 1 February 2021 to 1 February 2022.
The postponement is due to the impact of COVID-19 on the implementation of regulatory projects and IT deliveries by central securities depositaries and a wide range of market participants.
EMIR: European Commission adopts Delegated Regulation on rules of procedure for penalties imposed on third-country CCPs
The European Commission has adopted a Delegated Regulation supplementing EMIR with regard to rules of procedure for penalties imposed on third-country central counterparties (CCPs) or related third parties by ESMA.
Article 25i(7) of EMIR empowers the Commission to adopt delegated acts to specify further the rules of procedures for the power (of ESMA) to impose penalties, including provisions on the rights of the defence, temporal provisions, and the collection of fines or periodic penalty payments, and the limitation periods for the imposition and enforcements of penalties.
The next step is for the Council of the EU and the European Parliament to consider the draft Delegated Regulation. If neither the Council nor the Parliament object, it will be published in the OJ and will enter into force the day after its publication.
EMIR: Implementing Decision on equivalence of US SEC regime
Implementing Decision (EU) 2021/85 on equivalence of the US regulatory framework for CCPs authorised and supervised by the Securities and Exchange Commission (SEC) to the requirements of EMIR has been published in the OJ.
In the Decision, the Commission determines that the legal and supervisory arrangements applicable to US CCPs registered with the SEC are equivalent to requirements laid down in EMIR. The Decision applies only to SEC-regulated covered clearing agencies and is conditional: to be allowed to offer services in the EU, US CCPs must have rules in place with respect to certain risk management requirements (liquidation periods and anti-procyclicality measures) specified in Article 1 of the Decision.
This Decision will enter into force on 17 February 2021.
EMIR: European Commission adopts Delegated Regulation on procedure for penalties imposed on trade repositories
The European Commission has adopted a Delegated Regulation amending Delegated Regulation EU 667/2014 with regard to the content of the file to be submitted by the investigation officer to ESMA, the right to be heard in relation to interim decisions and the lodging of fines and periodic penalty payments. Delegated Regulation (EU) 667/2014 supplements EMIR with regard to rules of procedure for penalties imposed on trade repositories by ESMA, including rules on the right of defence. The adopted Delegated Regulation amends Delegated Regulation 667/2014 to adapt the existing rules of procedure to take account of changes introduced by the EMIR Refit Regulation.
The next step is for the Council of the EU and the European Parliament to consider the draft Delegated Regulation. If neither the Council nor the Parliament object, it will be published in the OJ and will enter into force the day after its publication.
EMIR: ESMA updates Q&As
ESMA has updated its Q&As on the implementation of EMIR. It has updated the trade repository Q&A 3b to explain how to report the direction of derivatives in specific cases that are described. In addition, a new Q&A for trade repositories on the procedure for terminating "dead trades" has been added.
SFTR: ESMA updates Q&As on data reporting
ESMA has updated its Q&As on complying with reporting requirements under the Regulation on reporting and transparency of securities financing transactions (SFTR). The Q&As are updated to clarify:
- reporting of events that were not duly reported on time;
- updates to records of outstanding securities financing transactions by trade repositories based on reports made by counterparties; and
- operational aspects concerning the reporting by financial counterparties on behalf of small non-financial counterparties under Article 4(3) of SFTR.
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Authored by Yvonne Clapham
