ECB Publishes Report on Fallback Arrangements for Users of €STR

The report points out that the private-sector working group on euro risk-free rates considered the following two options for fallback arrangement for €STR:

• Select one of the alternative rates that were considered in the consultation before the euro risk-free rate was selected.
• Take into account the methodology review that ECB will conduct on a regular basis to ensure that the underlying interest of the €STR is adequately measured and captured. Also take into account the policies and procedures to be followed in case of the possible cessation of the €STR, in line with the ECB legal framework, combined with the use of contractual fallbacks for products that reference the €STR that are consistent with the relevant parts of those already recommended with respect to EONIA.

The report is intended to provide the supervised entities with guidance on potential ways to comply with Article 28.2 of the EU Benchmarks Regulation when using the euro short-term rate (€STR) as the euro risk-free rate in contracts. Article 28.2 of the Benchmarks Regulation requires supervised entities to have robust written plans setting out the actions they would take in the event that a benchmark materially changes or ceases to be provided. Those plans should be reflected in the contractual relationship with clients. Where feasible and appropriate, the plans should include the nomination of one or several alternative benchmarks that could be referenced to substitute the benchmarks no longer provided, indicating why such benchmarks would be suitable alternatives. 

Related Links

• Press Release
• Report (PDF)
• Legal Action Plan, July 2019 (PDF)

Keywords: Europe, EU, Banking, Securities, €STR, Risk-free Rates, Benchmarks Regulation, Fallback Provisions, Interest Rate Benchmarks, ECB