MOSCOW (Pakistan Point News / Sputnik - 09th December, 2020) The European Union endorsed new rules on Wednesday to ensure that its financial stability is not affected when widely-used financial benchmarks cease to exist, as soon it will be the case with the London Interbank Offered Rate (Libor).
"EU ambassadors today confirmed on behalf of the Council an agreement reached between the German presidency and the European Parliament's negotiators on amending the so-called Benchmark Regulation. The agreed amendments are of key importance to avoid any systemic risks that might result from the phasing out of the London Inter-Bank Offered Rate (LIBOR) by the end of 2021," the council of the EU said in a press release.
It explained that many contracts and financial instruments widely use Libor reference rates, so action is needed to adjust them in the run-up to the benchmark expiry after 2021. The council also noted that "the cessation of LIBOR does not result from the withdrawal of the United Kingdom."
According to Jorg Kukies, German state secretary for financial market policy, the new "agreement is essential in order to avoid significant risks to the stability of our financial system and our economy."
"The aim of the amendments to the Benchmark Regulation is to make sure that a statutory replacement benchmark can be established by the regulators by the time a systemically important benchmark is no longer in use, and thus protect financial stability on EU markets," the press release read.
Under the new rules, the commission will also be able to replace so-called critical benchmarks and third-country benchmarks if their cessation would result in a significant disruption for the EU's financial markets.
The top UK regulator announced in 2017 that Libor would be phased out. It came in the wake of scandals around manipulations with the widely-used rate. The latter will cease at the end of 2021.
