Information on fallback plans for benchmarks

The Jyske Bank Group – comprising Jyske Bank, Jyske Realkredit, Jyske Invest Fund Management and Jyske Finans - uses benchmarks in a number of financial products and contracts. The Benchmarks Regulation (BMR) requires supervised entities to draw up and maintain robust written plans in the event that a benchmark is discontinued or its methodology changes significantly. These plans must be integrated into the contractual arrangements with customers and counterparties.

This information provides an overview of how the Jyske Bank Group is prepared for these situations.

What is a benchmark?

A benchmark is a reference value to which financial products and contracts can be linked. It may, for example, be an interest rate or a share index. Benchmarks are used, amongst other things, to calculate variable interest rates on loans and mortgage loans, as a reference in investment products and to measure returns.

Within the Jyske Bank Group, benchmarks are primarily used in the form of interest rate references – particularly CIBOR – as well as share indices and commodity-related benchmarks.

The Jyske Bank Group’s fallback plans

The Jyske Bank Group has drawn up general, company-specific and unit-specific fallback plans describing what happens if a benchmark changes significantly or is discontinued. The plans have been drawn up in accordance with the requirements set by the BMR for users of benchmarks.

For most benchmarks, the plans include pre-identified replacement benchmarks. See an overview of the respective benchmarks and their replacement benchmarks below.

The use of the specified replacement benchmarks will be reviewed on an ongoing basis, and in particular in connection with the discontinuation or a significant change to the original benchmark.

The objective in selecting replacement benchmarks is that, as far as possible, the replacement benchmark should measure the same market and use the same methodology as the original benchmark. In certain cases – particularly for the more recent transaction-based reference rates – no obvious alternative is available. The Jyske Bank Group monitors market developments on an ongoing basis and will update its plans as suitable replacement benchmarks and transitional methods are identified.

Similarly, the need for contractual adjustments has been assessed in advance. Any necessary adjustments and clarifications are being implemented on an ongoing basis.

The fallback plans also include communication plans for relevant scenarios.

The fallback plans are not static - they are reviewed regularly and can be adapted if new circumstances arise or if market practices point in a different direction than the measures planned in advance.

The Benchmark Monitoring Group (BMFG)

Responsibility for monitoring benchmarks and for the fallback plans lies with the Jyske Bank Group’s Benchmark Monitoring Group (BMFG). The BMFG is a cross-functional group comprising representatives from the relevant business units and subsidiaries within the Group.

The BMFG continuously monitors developments in the benchmarks used by the Group and decides when a fallback plan should be initiated. When a plan is activated, the heads of the relevant units and the competent decision-making bodies in the affected companies are involved in the final decisions regarding the selection of a replacement benchmark and its practical implementation.

What happens if a benchmark is changed or discontinued?

The Jyske Bank Group is prepared for both situations where a change or discontinuation is announced well in advance and situations where it occurs suddenly. Regardless of the situation that arises, the Jyske Bank Group will, based on the fallback plans, implement relevant measures to ensure an orderly transition to a replacement benchmark.

In all cases, the Jyske Bank Group will endeavour to act in line with market conditions and in a manner that minimises value discrepancies for the affected businesses. When transitioning from interest rate benchmarks with a credit risk component – such as CIBOR – to ‘risk-free’ reference rates such as DESTR, it is expected that a ‘Credit Adjustment Spread’ (CAS) will be applied. A CAS is a premium used to compensate for the fact that the two interest rate benchmarks are constructed differently: CIBOR includes, amongst other things, a component that reflects the banks’ credit risk, whereas risk-free rates such as DESTR do not. The premium ensures that the transition takes place as fairly and in line with market conditions as possible.

The choice of replacement benchmark is made taking into account applicable legislation, regulatory recommendations, recommendations from the benchmark administrator and widely recognised industry organisations – including the International Swaps and Derivatives Association (ISDA).

Communication with customers

Affected customers and counterparties will be informed of relevant changes to benchmarks and the specific implications for their products and contracts before the changes are implemented. The Jyske Bank Group endeavours to safeguard customers’ interests to the greatest possible extent and pays particular attention to customers with limited knowledge of financial markets.

Updating the plans

The fallback plans are reviewed on an ongoing basis and at least once a year – as well as in the event of significant changes to the relevant benchmarks or market conditions.