Divergent approaches to the IBORS

There seems to be a divergence of approach appearing between the authorities’ approaches to LIBOR and EURIBOR.  On 25th February, the European Presidency and the EP reached a political agreement on low carbon benchmarks, and issued a proposed regulation to amend the BMR about it, and tucked away on page 13 of this is a proposal to amend article 23(6) of the BMR to extend from two years to five the period that a competent supervisory authority can impose mandatory contributions to critical benchmarks such as LIBOR and EURIBOR. Two days later there was a meeting of the working group on euro risk-free rates and the minutes of that meeting appeared yesterday.  They record the EC’s Tilman Lüder stressing the importance of a reformed EURIBOR being authorized under the BMR by the end of 2019, and expressing confidence that, with the necessary reforms, EURIBOR had “good medium-term prospects” adding that “contributors should recognize the value of joining its panel”.  Rather gnomic perhaps?  After all, what’s in it for the banks? The reformed EURIBOR would not be wholly based on actual transactions, but rather would remain very reliant on expert submissions, so why take the legal risk of contributing and then being on the hook for serious penalties for incorrect submissions? Tricky.  However, it does show that at the official level at least there is some ambition to continue EURIBOR post-2021, in contrast to the FCA view in the UK and the USA that the market must assume that LIBOR will be gone by the end of 2021, and shift (in a way that is still being developed) to using SONIA, and compounded term rates based on SONIA plus a spread.