The Financial Services Act 2021
The FS Act 2021 introduced amendments to the BMR in order to provide for the orderly wind-down of critical benchmarks. Specifically, the amendments to the BMR grant new and enhanced powers to the FCA, providing an overarching legal framework which it can exercise to cater for a range of scenarios that could occur where a critical benchmark might become unrepresentative or cease.
	This section of the explanatory notes sets out the key elements introduced in the FS Act 2021 to amend the BMR. A full commentary on those amended provisions is available in the explanatory notes to the FS Act 2021 2 (pp.62-68). The references to articles in this section of the explanatory notes should all be read as referring to articles of the BMR which were amended or introduced in the FS Act 2021.
	The FS Act 2021 amended Article 21 of the BMR and introduced new provisions relating to the FCA’s powers to mandate the administrator of a critical benchmark to continue publishing the benchmark under certain conditions where the administrator gives notice of its intention to cease providing the benchmark. The maximum period for which the FCA may compel the administrator to continue publishing the benchmark was extended from 5 to 10 years. It also introduced provisions to require the FCA to conduct an assessment of the benchmark’s capability to represent the underlying market and economic reality it seeks to measure (its "representativeness"), where the FCA decides to mandate administration of a critical benchmark. The market or economic reality that the benchmark seeks to measure is set out in the benchmark statement, which the administrator of the benchmark must publish in accordance with Article 27 of the BMR.
	The FS Act 2021 introduced Article 21A of the BMR which grants the FCA the power to prohibit some or all "new use" of a critical benchmark where the FCA has completed its assessment of the administrator’s plans to cease providing the benchmark under Article 21. Broadly, "new use" consists of creating new financial instruments or contracts that reference the benchmark after the prohibition; or using the benchmark in existing contracts, instruments or funds after the prohibition date where the contracts, instruments or funds did not reference the benchmark before the date of the prohibition. Article 29(1B) provides expressly that use of a designated benchmark by a supervised entity in breach of this prohibition does not affect either the validity or enforceability of a contract or other arrangement.
	Articles 22A and 22B relate to the assessments of critical benchmarks conducted by the administrator and the FCA respectively. Article 22A requires the administrator of a critical benchmark based on contributions from supervised entities or supervised third country entities to conduct an assessment of the benchmark’s "representativeness" at least biennially, upon written notice from the FCA; and where a supervised contributor or a supervised third country contributor gives notice of its intention to cease contributing input data. Article 22B requires the FCA to conduct its own assessment of representativeness upon receipt of the administrator’s assessment under Article 22A and provide a written notice to the administrator setting out the outcome of its assessment.
	The FS Act 2021 amended Article 23 of the BMR to introduce new requirements clarifying that a contributor who gives notice to cease contributing to a benchmark shall not cease that contribution until the end of its notice period (which is a minimum of 15 weeks), unless the FCA gives it written permission otherwise.
	Article 23A introduced a power for the FCA to designate a critical benchmark under this Article where the FCA has given notice to the administrator under Article 21 or Article 22B that the benchmark is not able to accurately represent the market or economic reality it seeks to measure ("unrepresentative"), or that such representativeness is at risk. Under Article 23B, all use by supervised entities of an Article 23A benchmark is prohibited, except where the FCA makes exemptions under paragraph 2 of Article 23B or under Article 23C. Paragraph 2 of Article 23B allows the FCA to delay the date on which the prohibition under Article 23B comes into force by up to four months, beginning on the day on which the Article 23A designation takes effect. Article 23C grants the FCA the power to specify and permit certain "legacy use" by supervised entities of an Article 23A benchmark. Broadly, "legacy use" is where reference to the benchmark was included in a contract and instrument before the date the prohibition on new use of that benchmark comes into effect. "Legacy use" by supervised entities is prohibited except where the FCA has permitted use under Article 23C.
	Article 23D of the BMR granted the FCA further specific new powers to provide for the orderly wind-down of a critical benchmark. Where the benchmark has been designated under Article 23A, the FCA may, by issuing a notice, require the administrator to change how a critical benchmark is determined, including in relation to the input data applied to the benchmark’s methodology and rules of the benchmark. Article 23G clarifies that the FCA will be able to apply the relevant powers to provide for the orderly wind-down of each "version" of a critical benchmark, where a benchmark is provided in different currencies, maturities and tenors.