As hinted at above, we would welcome the extension of the powers of the NCAs or ESMA, so that they can determine the replacement rate and also allow the use of non-compliant benchmarks in legacy contracts, particularly in those contracts that do not contain a specific fallback provision (silent contracts) or the applicable clause is either not appropriate or not workable.

Benchmark users should be allowed to continue using such benchmark in certain circumstances avoiding its automatic cessation, in order to ensure the continuity of the contracts using such benchmark as a reference. This provision could be established either for users of certain products or transactions that may prove impossible to modify (e.g. mortgage loans), or for a sufficient period of time which allows its replacement by another benchmark.

Identified Concerns

ESBG supports the Commission’s approach on a revision of the Benchmark Regulation (BMR). The main objective should be granting broader powers to competent authorities at national or European level to ensure an orderly cessation of a critical benchmark. These powers should include the mandate to continue granting the provision of a critical benchmark using a different methodology or a replacement rate. The introduction of those powers is crucial in order to avoid significant market disruption and extensive litigation and reduce legal risk. For legacy contracts, competent authorities should decide the replacement rate or the maintenance of the old IBOR rate. Without providing these measures, the IBOR transition process can result in a risk to financial stability, a major legal risk for financial entities due to contract frustration and, without doubt, could cause detriment to investors.

Why Policymakers Should Act​

​The BMR should grant customised powers to competent authorities to ensure the orderly transition from a critical benchmark to a replacement rate. ESBG is convinced that the public sector can play a role in helping the private sector to manage the risk associated with reference rate transition, in particular requiring a shift from one reference rate to another by law. We think that the problems of contract law can indeed be better compensated by a legal replacement.​


The European Commission proposed in September 2013 a draft regulation on indices used as benchmarks in financial instruments and financial contracts (the “Benchmarks Regulation” or “BMR)). The Regulation was published in the Official Journal on 29 June 2016, and applied as of 1 January 2018. It introduced a common framework to ensure the accuracy and integrity of indices used as benchmarks in financial instruments and financial contracts, or to measure the performance of investment funds in the Union. The Regulation provides that by January 2020, the Commission should review and submit a report to the European Parliament and to the Council on this Regulation and in particular on (a) the functioning and effectiveness of the critical benchmark, mandatory administration and mandatory contribution regime; (b) the effectiveness of the authorisation, registration and supervision regime of administrators and (c) the functioning and effectiveness of Article 19(2) (commodity benchmarks as critical benchmarks), in particular the scope of its application. The formal review process was meanwhile launched. The Commission published on 24 July 2020 a proposal for a regulation amending the EU Benchmarks Regulation. In this proposal the Commission would be able to designate a statutory replacement benchmark. ​