Supporting the orderly wind-down of a critical benchmark under Article 23A of the BMR
In order to support the orderly wind-down of a critical benchmark, such as LIBOR, this Act provides legal certainty as to how contractual references to a critical benchmark should be interpreted where the FCA exercises specific powers under the BMR to oversee the wind-down of the benchmark. The purpose of this legislation is to ensure that the powers provided to the FCA in the FS Act 2021 operate effectively, and in particular that where the FCA exercises its powers to provide for the continuity of certain LIBOR settings, parties to tough legacy contracts are able to continue to apply LIBOR to their contracts with confidence. The provisions, as described below, are also intended to ensure the application of a synthetic methodology to a benchmark does not inadvertently give rise to breach of contract claims or provide a vehicle for one party to claim that the contract has been frustrated. They are designed to enable contracts to continue undisturbed once a benchmark is designated under Article 23A.
	This Act inserts new Article 23FA into the BMR which clarifies that references to a designated "Article 23A benchmark" should continue to be interpreted as references to that benchmark after the FCA has exercised certain powers under the BMR. For example, in the case of LIBOR, this Act provides certainty that contractual references to LIBOR should continue to be treated as references to that benchmark where the FCA has directed a change in how LIBOR is calculated, i.e. synthetic LIBOR.
	It also provides that, in respect of an Article 23A benchmark, where parties have referenced a benchmark in a contract before this Act comes into force or before the benchmark is designated as an Article 23A benchmark, the contract will be treated as if it has always provided for the reference to include the benchmark, notwithstanding changes resulting from the exercise of the FCA’s powers, such as a change in the methodology of LIBOR.
	This provides parties with clarity that, unless the contract provides otherwise, an Article 23A designation of the benchmark under the BMR, and any subsequent changes to the benchmark imposed by the FCA, do not in themselves provide grounds for contracting parties to argue that use of the synthetic benchmark is a breach of contract, that there has been a material change to the contract, or that the contract has been frustrated.
	Article 23FA and Article 23FB apply to any reference to a critical benchmark that is designated under Article 23A of the BMR, however that reference is expressed. This extends beyond the definitions of "use" of a "benchmark" as defined in Article 3 of the BMR to references to the benchmark in all contracts and other arrangements.
	This Act also makes clear that in respect of an Article 23A benchmark, where a contract or other arrangement includes a fallback clause to operate by reference to something other than the benchmark in question, Article 23FA does not prevent or affect the operation of that fallback clause. The intention of this provision is to not override those contracts which have provided for alternative arrangements to be triggered either before or during LIBOR’s wind-down. However, this Act clarifies that where a contract or arrangement has a fallback clause that is triggered by the cessation or unavailability of the benchmark in question, these clauses would not be triggered where the FCA uses its powers under the BMR to provide for the continued publication of the benchmark with a revised methodology i.e. synthetic LIBOR.