ECB Publishes Recommendations on Transition from EONIA to €STR
ECB published a set of recommendations, from the private sector working group on euro risk-free rates, on the legal action plan for transition from the euro overnight index average (EONIA) to the euro short-term rate (€STR). The recommendations of the working group are related to EONIA fallback rate, new contracts referencing EONIA, and legacy contracts referencing EONIA.
Among other things, the working group recommends the €STR plus a fixed spread of 8.5 basis points as the EONIA fallback rate for all products and purposes. Market participants, whenever feasible and appropriate, should consider avoiding entering into new contracts referencing EONIA, in particular new contracts maturing after December 31, 2021, as EONIA will cease to exist after that date. For existing contracts referencing EONIA and maturing after December 2021, market participants should either consider replacing EONIA as a primary rate as soon as possible or embed robust fallback clauses. In cases where new contracts still reference EONIA and mature after December 2021, or fall within the scope of the EU Benchmarks Regulation (BMR), market participants should include robust fallback provisions.
Additionally, to enhance transparency, while not strictly necessary, new contracts signed before October 2019 should ideally include clarification that the EONIA methodology is expected to change as of October 02, 2019 and that references in contracts to EONIA shall be understood to be references to EONIA as changed, unless otherwise agreed by the parties. The working group recommends that market participants consider focusing their efforts on amending legacy contracts maturing after December 2021. Legacy contracts with EONIA as the underlying/reference rate that mature before December 2021 will be covered by the ongoing publication of EONIA until the end of 2021.
Related Links
Keywords: Europe, EU, Banking, Securities, EONIA, €STR, Legal Action Plan, Recommendations, Risk-Free Rates, Interest Rate Benchmarks, Fallback Provisions, ECB
Previous Article
EMMI Authorized as EURIBOR Administrator Under Benchmark RegulationRelated Articles
APRA Publishes Results of Climate Risk Self-Assessment Survey
The Australian Prudential Regulation Authority (APRA) has published the findings of its latest climate risk self-assessment survey conducted across the banking, insurance, and superannuation industries.
ACPR Publishes Updates Related to CRD IV and Covered Bonds
The French Prudential Supervisory Authority (ACPR) published a notice related to the methods for calculating and publishing prudential ratios under the Capital Requirements Directive (CRD IV) and the minimum requirement for own funds and eligible liabilities (MREL).
BIS Paper Contributes to Debate on Regulating NBFIs and Big Techs
The Financial Stability Institute (FSI) of the Bank for International Settlements recently published a paper proposing a framework for classifying financial stability regulation as either entity-based or activity-based.
EIOPA Publishes Guidance on Climate Change Scenarios in ORSA
The European Insurance and Occupational Pension Authority (EIOPA) published the risk dashboard based on Solvency II data and the final version of the application guidance on climate change materiality assessments and climate change scenarios in the Own Risk and Solvency Assessment (ORSA).
EBA and ECB Respond to Proposals on Sustainability Disclosures
The European Banking Authority (EBA) and the European Central Bank (ECB) published their responses to the consultations of the International Sustainability Standards Board (ISSB) and the European Financial Reporting Advisory Group (EFRAG) on sustainability-related disclosure standards.
BIS Report Notes Existing Gaps in Climate Risk Data at Central Banks
A Consultative Group on Risk Management (CGRM) at the Bank for International Settlements (BIS) published a report that examines incorporation of climate risks into the international reserve management framework.
EBA Publishes Multiple Regulatory Updates for Regulated Entities
The European Banking Authority (EBA) published the final guidelines on liquidity requirements exemption for investment firms, updated version of its 5.2 filing rules document for supervisory reporting, and Single Rulebook Question and Answer (Q&A) updates in July 2022.
EIOPA Issues SII Taxonomy and Guide on Sustainability Preferences
The European Insurance and Occupational Pensions Authority (EIOPA) published Version 2.8.0 of the Solvency II data point model (DPM) and XBRL taxonomy.
EESC Opines on Proposals on CRR and European Single Access Point
The European Union published, in the Official Journal of the European Union, an opinion from the European Economic and Social Committee (EESC); the opinion is on the proposal for a regulation to amend the Capital Requirements Regulation (CRR).
HM Treasury Publishes Multiple Regulatory Updates in July 2022
HM Treasury published a draft statutory instrument titled “The Financial Services (Miscellaneous Amendments) (EU Exit) Regulations 2022,” along with the related explanatory memorandum and impact assessment.