A reference benchmark is an index used for the purposes set out in Regulation (EU) 2016/1011 of the European Parliament and of the Council of 8 June 2016. This Regulation concerns indices used as reference benchmarks in financial instruments and financial contracts or to measure the performance of investment funds and amending Directives 2008/48/EC and 2014/17/EU and Regulation (EU) No 596/2014, OJ L 171, 29.06.2016, as amended, hereinafter the BMR Regulation.

These objectives boil down to determining the amount payable under:

• a financial contract or
• a financial instrument or
• measuring the performance of an investment fund.

An reference benchmark, on the other hand, is a value regularly calculated on the basis of a method or formula and the data used, which is intended to measure a specific economic reality that varies over time and is then published to the public.

The reference benchmark used in the Polish market include WIBOR, WIRON, EURIBOR, SOFR, SONIA, SARON, LIBOR, among others.

Based on the reference benchmarks:

• banks determine interest rates on loans, deposits, structured products, debt securities and other financial instruments;
• parties to contracts can determine their mutual obligations and settle transactions.

Since 2014, there has been a global discussion on the reform of reference benchmarks. This discussion has resulted in reforms of indices such as WIBOR, LIBOR and EURIBOR or decisions to phase them out and replace them with new benchmarks based on transactions that are almost risk-free so-called risk-free rates, called RFR Benchmarks.

General risks are:

• The administrator of a given reference benchmark may decide to temporarily or permanently discontinue its development. The relevant authority may also revoke the administrator's authorisation to develop a particular benchmark;
• Certain reference benchmarks, including their methodology, may be changed by the administrator of a given benchmark. The reasons for such changes are regulatory or business factors;
• Reference benchmarks may cease to be published or developed in their entirety, as well as in relation to a particular interest period or currency. Corresponding alternative benchmarks need not be designated;
• Reference benchmarks may no longer adequately reflect the economic reality or market in question. This will happen when the providers of the data necessary to compile the indicator cease to provide input data or the reference benchmark is deemed by the relevant supervisory authority to be unreliable, making it ineligible to measure the underlying market in question.

Variable interest rate risk

In the case of variable-rate loans, a change in the value of the reference benchmark may result in an increase in the interest portion of the loan instalment. This will result in an increase in the total cost of the loan.

Risk of change by the administrator of the reference benchmarks development method

The reference benchmark developer is entitled to make a change to the reference benchmark development method in accordance with the procedure set out in the reference benchmark documentation published by the administrator on its website. The making of such a change by the administrator shall precede the public consultation process. As part of that consultation, the administrator will set out the scope of the proposed change and the rationale for the change. The rationale for making a change to the administrator's reference benchmark development method may be, for example, the need to adapt the benchmark development method to the requirements of the BMR Regulation, supervisory guidance or a recommendation from a supervisory body.

A consequence of a change in the method of developing a reference benchmark may be a change in the value of it. An increase in the value of the reference benchmark may result in an increase in the interest portion of the loan instalment. The result will be an increase in the total cost of the loan.

Risk of permanent or temporary cessation of the development of the reference benchmark by the administrator

The reference benchmark developer shall have the right to discontinue the development of the reference benchmark in accordance with the procedure set out in the reference benchmark documentation published by the administrator on its website, subject to the supervisory powers provided for in this respect under Articles 21 and 23 of the BMR Regulation.

The administrator may decide to discontinue the development of the reference benchmark, in particular for business reasons. Another reason may be that the administrator considers that the data used to develop the reference benchmark is not representative of the market or economic reality that the benchmark is intended to measure.

The process of discontinuing the development of a reference benchmark is preceded by a public consultation process, which usually takes several months. During this time, the administrator will determine the date from which it intends to cease developing the reference benchmark.

In addition, the method of developing the reference benchmark usually indicates that there are circumstances in which the administrator may not be able to set a reference benchmark value on a date in question. An example is when the administrator does not receive sufficient data necessary to determine the value of the reference benchmark on a day in question.

Reference benchmarks are developed by administrators. An administrator is an entity, independent of the bank, subject to the supervision of a public authority that authorises the administrator and assesses the quality of the method of developing the reference benchmark. The indices developed in Poland are supervised by the Financial Supervision Commission.

The administrator guarantees that a reference benchmark in question reflects the economic (market) reality in a reliable and accurate manner. Likewise, the data on which the calculation of the indicator is based is complete, reliable and of high quality.

After the 2008-2009 financial crisis, the European Commission started to work on a new standard for the calculation and use of reference benchmarks to ensure their transparency, credibility and increase consumer protection. The BMR Regulation was issued and applies from 1 January 2018.

The BMR Regulation i.a. sets out the principles under which benchmarks are developed and the rules for the supervision of institutions that develop and make these benchmarks available to financial market participants, including banks.

The BMR has introduced additional obligations for banks. Most importantly, all reference benchmarks used by banks in contracts and financial instruments must be reference benchmarks registered in a record maintained by the European Securities and Markets Authority (ESMA). Entry in this record follows a process to verify that the administrator in question complies with the requirements of the BMR.

Each bank must have a contingency plan in the event of a material change or discontinuation of the further development of reference benchmarks. It is also obliged to reflect this plan appropriately in its contracts with customers.

Like the all banking sector, we have developed a contingency plan. Contingency conditions reflecting this plan are included in the contracts you currently enter into with your customers. If your contract does not contain a contingency condition, you can sign a free addendum to your contract.

The BMR Regulation empowers the European Commission or a national authority to designate a so-called replacement for a disappearing benchmark.

The European Commission or a national authority can only designate a replacement under certain conditions. These are set out in the BMR Regulation and only in relation to a specific catalogue of reference benchmarks. If the Commission or the national authority designates a replacement reference benchmark, it will by law be used in contracts where there is no or inadequate fallback condition. In other cases, the provisions of the contract and the fallback condition therein will apply.

In Poland, the national authority for the designation of the so-called replacement for the disappearing index is the Minister competent for financial institutions. He may (after exhausting the procedure set out in the Macroprudential Supervision Act, in relation to a key reference benchmark such as WIBOR, by regulation) determine:

• the replacement and adjustment of the spread (or the method of determining it);
• the relevant adjustment changes;
• the date on which the relevant proxy becomes applicable.

WIBOR is a key interest rate benchmark within the meaning of the BMR Regulation. WIBOR is compiled and published by the administrator, WSE Benchmark S.A., which is authorised by the Polish Financial Supervision Authority to operate as an administrator of interest rate benchmarks, including key reference benchmarks.

Detailed information on:

• current and historical index values;
• the description of the key elements of the index compilation method;
• the procedure for reviewing and revising the methods of interest rate benchmarks;
• the procedure for complaints relating to the determination of WIBOR and the rules for its publication;

can be found on the WSE Benchmark S.A.link otwiera się w nowym oknie website.

The WIBOR reference benchmark is used in various products offered by the bank as a component on the basis of which, for example, interest rates on investment loan instalments and other products are determined.

WIRON is a benchmark within the meaning of the BMR Regulation and is developed and published by WSE Benchmark S.A. on the basis of an authorisation granted by the Financial Supervision Commission.

Detailed information on:

• current and historical values of the index;
• the description of the key elements of the index compilation method;
• the procedure for complaints relating to the determination of WIRON;
• the rules of its publication;

are available on the WSE Benchmark S.A.link otwiera się w nowym oknie website.

WIRON is an interest rate benchmark that is close to the risk free rate (RFR). It is developed on the basis of actual deposit transactions concluded between financial institutions and large enterprises and data providers. These transactions are concluded with a period starting on the day of their conclusion and ending on the next business day (O/N - overnight).

WIRON is intended to be used as an interest rate benchmark within the meaning of the BMR Regulation. According to the Roadmap, it is planned to replace WIBOR with WIRON, which will be widely used in financial contracts and instruments.

In July 2022, the National Working Group on Interest Rate Benchmarks Reform (NGR), set up by the Financial Services Authority, began its work. This group consists of:

• representatives of the Ministry of Finance;
• National Bank of Poland;
• Financial Supervision Authority;
• Bank Guarantee Fund;
• Polish Development Fund;
• Warsaw Stock Exchange;
• National Depository for Securities;
• Bank Gospodarstwa Krajowego;
• WSE Benchmark S.A;
• representatives of banks, investment funds and insurance companies;
• industry organisations bringing together financial market players.

The purpose of the NGR's work is to prepare a so-called "Road Map" and a schedule of actions to smoothly and safely arrange the process of replacing the WIBOR benchmark with WIRON.

According to the Roadmap, the process will be staggered over time:

• From December 2022, banks can offer new financial products based on the WIRON benchmark alongside WIBOR-based products.
• By the end of 2023, WIRON is to be gradually introduced into new contracts and financial instruments.
• By the end of 2024, the process of changing reference benchmarks is to be completed. This means that WIBOR-based products will not be available after this time.
• From the beginning of 2025, the WIBOR benchmark will cease to be published. This means that banks will replace the WIBOR benchmark in contracts for the WIRON benchmark, based on a regulation of the Ministry of Finance or contingency clauses in the contract.

The Roadmap is not a source of universally applicable law, but merely indicates the turning points for the replacement of the WIBOR benchmark by WIRON that financial market participants can expect in the future.

The dates indicated in the Roadmap are an expression of the agreements that all NGR members are aiming for in the process of replacing the WIBOR benchmark with WIRON. However, due to the many interrelated elements and the level of complexity involved in replacing the WIBOR benchmark, it cannot be excluded that the Roadmap will change (including the adjustment dates indicated therein).

You can find the Road Map herelink otwiera się w nowym oknie

Up-to-date information on this process can be found on the Financial Supervisory Commission's website herelink otwiera się w nowym oknie

We do not currently offer products based on the WIRON benchmark.

At Bank Millennium, we are working hard to adapt our IT systems, regulations and documents to allow us to introduce the WIRON index as soon as possible. We will inform you in advance of the start date for individual WIRON-based products.

WIBOR may be replaced based on:

• a fallback condition in the contract;
• amendments to concluded agreements, which so far did not contain an emergency condition in the event of discontinuation of publication of the WIBOR benchmark;
• Ordinance of the Minister of Finance specifying the substitute, spread adjustment, adjustment changes and the date of validity of the new ratio, if the contract does not contain emergency clauses or they are inappropriate.

According to the assumptions of the Road Map, WIBOR will not be published from the beginning of 2025.

Yes. WIBOR is a benchmark that is fully compliant with the BMR Regulation, as confirmed in the Financial Supervision Commission's communication of 17 December 2020, in which the Commission confirmed "the process for determining the WIBOR benchmark as compliant with the requirements imposed under European Union law."

You can find the full communication herelink otwiera się w nowym oknie

WIBOR is developed by the WSE Benchmark S.A. - an administrator that has been authorised by the FSC to develop i.a. this reference benchmark. The Polish Financial Supervision Authority has published a statement confirming that the method of developing the WIBOR index meets the conditions required by the BMR Regulation. Allegations of alleged manipulation of the WIBOR benchmark should not be justified by the ongoing work related to the reform of reference benchmarks and, in particular, that the ongoing work by the NGR does not mean to undermine the regulatory correctness of WIBOR.

You can find the full communication herelink otwiera się w nowym oknie

Financial Stability Committee, i.e. the body competent for macro-prudential supervision in Poland, whose members are:

• representatives of the National Bank of Poland;
• the Financial Supervision Authority;
• Ministry of Finance;
• Bank Guarantee Fund;

published a statement indicating that there is no legal or economic basis to deny the correctness of the determination of WIBOR.

You can find the full communication herelink otwiera się w nowym oknie

The discontinuation of the publication of the WIBOR benchmark is due to the reform of reference benchmarks (see "Why the EU benchmark regulation was created").

The primary source of information on the replacement of WIBOR by WIRON is:

• the website of the Financial Supervision Authority knf.gov.pllink otwiera się w nowym oknie;
• the website of the WIBOR and WIRON administrator gpwbenchmark.pllink otwiera się w nowym oknie;
• the website of the Polish Banks Association bankiwpolsce.pl/wibor-wironlink otwiera się w nowym oknie.

RFR benchmarks (as opposed to forward-looking indices (e.g. LIBOR, WIBOR) - that is, indices that were published before the period to which they relate) are backward-looking indices. This means that they are reported after the period to which they relate, as they consist of historical data on transactions concluded during the relevant reference period.

RFR benchmarks are overnight rates, calculated on a daily basis based on reported data on the transactions concluded. In order to be able to apply them forward, e.g. for a period of 3 months, it is necessary to transform them by means of an appropriate method, from a series of values of a given RFR, from a given reference period.

For this reason, forward RFR Indices, so-called "compounded rate's", are developed, which allow the RFR Indices to determine interest rates for longer interest periods.

Forward RFR Benchmarks, such as for example the "WIRON 1M Compound Rate", are calculated on the basis of the daily values of the underlying RFR Benchmark - here the WIRON Benchmarks. The administrator calculating such a Forward RFR Benchmark takes into account a certain period of publication of the RFR Benchmark, which corresponds to a specific tenor (for the "WIRON 1M Compound Rate" this will be one month), and then determines the observation period of such RFR Benchmark, from which it will take the values of the RFR Benchmark. From the series of values, by applying an appropriate method (for "WIRON 1M Compound Rate" it is the compound interest rule), the value of the Forward RFR Benchmark is calculated.

The observation period need not coincide with the interest period for which the Forward RFR Benchmark will be used. In this way, the final value of the Forward RFR Benchmark will be known before the end of the interest period. The observation period of the base benchmark may start, for example, a few days before the start of the interest period for which it will be used. As a result, the value of the Forward RFR "compounded rate" will be known by the same number of days before it applies for that interest period.

5 March 2021. The Financial Conduct Authority - the FCA (the UK's financial regulator) - has announced that from 1 January 2022, certain currencies and tenors of the LIBOR benchmark will no longer be developed and published. In turn, some will cease to be representative, according to the dates indicated in this announcement.

The FCA's announcement on the discontinuation of the publication of values for certain LIBOR currencies and tenors can be found herelink otwiera się w nowym oknie.

23 November 2022. The Financial Conduct Authority - the FCA (the UK's financial regulator) - has confirmed that USD LIBOR (ON/1Y) will be published until the end of June 2023.

At the same time, the FCA opened a public consultation that lasted until 6 January 2023. This concerned the LIBOR USD 3M and LIBOR USD 6M interest rate benchmark. As part of the consultation, the FCA considered and proposed that these benchmarks would continue to be published under a revised 'synthetic' methodology until 30 September 2024, after which time publication would cease.

Dates for the cessation of publication of USD LIBOR can be found below:

On 3 April 2023. The FCA announced that it had decided to require the Administrator to continue publishing LIBOR USD 3M and LIBOR USD 6M beyond 30 June 2023 using a "synthetic" method. At the same time, the FCA has indicated that the publication of these indices is scheduled to cease at the end of September 2024. However, this date is still subject to change.

The synthetic method for developing LIBOR USD 3M and LIBOR USD 6M means that the Administrator will determine these benchmarks based on the value of the relevant CME Term SOFR benchmark and a spread adjustment calculated in accordance with the methodology set out by ISDA. Details of LIBOR USD 3M and LIBOR USD 6M, including information on the value of these benchmarks, can be found on the Administrator's website.

Further information on LIBOR USD 3M and LIBOR USD 6M relating to the FCA's consultation process and decision can be found on the FCA's and the Administrator's website at:

• FCA consultation communication: https://www.fca.org.uk/news/news-stories/further-consultation-announcements-wind-down-liborlink otwiera się w nowym oknie and
• FCA decision notice: https://www.fca.org.uk/news/news-stories/fca-announces-decision-synthetic-us-dollar-liborlink otwiera się w nowym oknie
• Administrator information on USD LIBOR: https://www.theice.com/iba/liborlink otwiera się w nowym oknie

The register of administrators of reference benchmarks and benchmarks from third countries acceptable for use under the BMR is maintained by the European Securities and Markets Authority:

https://registers.esma.europa.eu/publication/searchRegister?core=esma_registers_bench_entitieslink otwiera się w nowym oknie

https://registers.esma.europa.eu/publication/searchRegister?core=esma_registers_bench_benchmarkslink otwiera się w nowym oknie

You can find more information on the reference benchmarks used in our contracts on the administrators websites below.

WIBORlink otwiera się w nowym oknie, WIBID

Name and address of the WIBOR and WIBID administrator

WSE Benchmark S.A. with registered office in Warsaw, 4 Książęca St., 00-498 Warsaw

Tel. 22 628 32 32, Email: kontakt@gpwbenchmark.pl

Detailed information on:

• current and historical benchmark values;
• the description of the key elements of the benchmark compilation method;
• the procedure for reviewing and revising the methodology of interest rate benchmarks;
• the procedure for complaints related to the determination of WIBOR/WIBID and the rules of its publication;

is available on the WSE Benchmark S.A.link otwiera się w nowym oknie website.

USD LIBORlink otwiera się w nowym oknie

Name and address details of the administrator of USD LIBOR

IBA is a public limited company registered in England with company number 08457573.

IBA's registered office is at Milton Gate, 60 Chiswell Street, London EC1Y 4SA, United Kingdom.

Contact details can be found at www.theice.com/contactlink otwiera się w nowym oknie

Tel: +44 (0)20 7429 7100, Email: IBA@theice.com

Detailed information on:

• current and historical benchmark values;
• the description of the key elements of the benchmark compilation method;
• the procedure for reviewing and revising interest rate benchmark methodologies;
• the procedure for complaints relating to the determination of USD LIBOR and the rules for its publication;

are available on the ICE Benchmark Administration Limitedlink otwiera się w nowym oknie website.

EURIBORlink otwiera się w nowym oknie

Name and address of the EURIBOR administrator

European Money Markets Institute, Avenue des Arts, 56, Brussels, Belgium

Tel: +32 (0) 2 431 52 08, Email: info@emmi-benchmarks.eu

Detailed information on:

• current and historical benchmark values;
• the description of the key elements of the benchmark development method;
• the procedure for reviewing and revising the methodology of interest rate benchmarks;
• the procedure for complaints relating to the determination of EURIBOR and the rules for its publication;

are available on the The European Money Markets Institutelink otwiera się w nowym oknie website.

SOFR, Average SOFR

Name and address details of the SOFR administrator

The Federal Reserve Bank of New York is the US bank of the Federal Reserve System.

The Fed is headquartered in New York at 33 Liberty Street, NY 10045.

Contact details can be found at www.newyorkfed.org/contactslink otwiera się w nowym oknie

Detailed information on:

• current and historical benchmark values;
• the description of the benchmark compilation method;
• its publication rules;

are available on the Federal Reserve Bank of New York (FED)link otwiera się w nowym oknie website.

SONIA

Name and address details of the SONIA administrator

Bank of England, Threadneedle Street, London, EC2R 8AH

Tel: +44(0)20 3461 4444

Contact details can be found at: www.bankofengland.co.uk/contactlink otwiera się w nowym oknie

Detailed information on:

• current and historical benchmark values;
• the description of the index compilation method;
• the publication arrangements;

are available on the Bank of Englandlink otwiera się w nowym oknie website.