Contractual uncertainty and dispute
Following publication of the Bill for the FS Act 2021, HM Treasury received feedback from market participants that further action is necessary in order to minimise the risk of market disruption and to protect users of a benchmark where the FCA exercises its powers under the BMR to wind-down a critical benchmark. During the passage of the FS Act 2021 9 , the Government committed to explore this further.
	In February 2021, HM Treasury published a consultation  10 seeking views on the case for additional legislation to provide legal certainty for parties that will continue to rely on a critical benchmark after the FCA has exercised its powers to provide for the orderly wind-down of that benchmark.
	As HM Treasury noted in its response to the consultation 11 , after careful consideration of consultation responses, the Government determined that it was appropriate to bring forward further legislation to address issues identified in the consultation. Responses to HM Treasury’s consultation focused on the LIBOR benchmark, which is currently the only critical benchmark that is administered in the UK. Responses suggested that, without legislative clarity, parties may be uncertain of, or contest, the continued application of LIBOR to their contract after the FCA has exercised its powers to designate the benchmark under Article 23A of the BMR and require its continued publication using a synthetic methodology. Respondents raised concerns that this could result in parties ceasing to perform their contractual obligations, legally challenging the enforceability of the contract, or bringing claims against contractual counterparties or third parties which continue to apply the synthetic form of LIBOR to the contract.
	Where there is either uncertainty or dispute over the continued application of LIBOR to tough legacy contracts, this could generate significant financial costs for contractual parties, including consumers. Where such disputes arise, they may also serve to reduce market confidence in the continued use of LIBOR in tough legacy contracts. If parties to tough legacy contracts are reluctant to continue to apply LIBOR as amended to their contracts, this would pose a real risk to the orderly wind-down of the benchmark, and relatedly, the integrity of UK financial markets.