Benchmark Regulation | Draft Law

Last July, Draft Law No. 7861 (the “Draft Law”) was published containing proposed amendments to the Law 17 April 2018 (the “Benchmark Law”) that had implemented Regulation (EU) 2016/1011 of 8 June 2016 on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds amending Directives 2008/48/EU and 2014/17/EU and Regulation (EU) 596/2014 (the “Benchmark Regulation”).
The draft law is aimed at aligning the Luxembourg legislative framework with the amendments introduced to the Benchmark Regulation by the following Regulations:

1. Regulation 2021/168 that introduced, among others and in the context of the cessation of LIBOR, provisions for the orderly termination of a benchmark; in order to reduce the legal uncertainty and the connected potential impacts on market integrity and financial stability, this Regulation provides for a replacement of certain benchmarks (mainly the critical benchmarks and the significant benchmarks) by EU or national law;
2. Regulation 2019/2175 that provides for ESMA to be, as of January 2022, the supervisory authority for the critical benchmarks and for the authorisation of benchmark administrators located in third countries;
3. Regulation 2019/2089 that introduced provisions with regard to the EU Climate Transition Benchmarks and EU Paris-aligned Benchmarks.

The amendments concern, mainly:

• the designation of ESMA (instead of the CSSF) as the competent authority for the supervision of critical benchmark and for the authorisation of the benchmark administrators located in third countries;
• the designation of the CSSF as the competent authority for the replacement of a benchmark under Article 23 quater of the amended Benchmark Regulation;
• the designation of the CSSF as the competent authority for the assessments and the declarations under Articles 23 ter, par. 7 and 5a (assessment for establishing if a benchmark agreed as a contractual fallback rate no longer reflects or significantly diverges from the underlying market), 23 ter, par. 2a and c (declarations announcing that the benchmark no longer reflects the underlying market or that the relevant administrator is commencing a wind-down procedure, to be acquired from the competent authority in the context of the designation by the European Commission of one or more replacements) and Article 23 quater, par. 1 a and c of the same Regulation (declarations announcing that the benchmark no longer reflects the underlying market or that the relevant administrator is commencing a wind-down procedure, in the context of the designation by the National Authority of one or more replacements);
• the alignment of Article. 4 of the Benchmark Law, regarding the case in which the CSSF may dispose administrative sanctions, by referring to the provisions concerning the EU Climate Transition Benchmarks and EU Paris-aligned Benchmarks.