Featured Product

    ESMA Issues Statement on Readiness for Benchmark Cessation at Year-End

    December 13, 2021

    The European Securities and Markets Authority (ESMA) published a statement from the EUR Risk Free Rate Working Group (RFRWG) on preparedness for the cessation of EUR, GBP, CHF, and JPY LIBORs and EONIA and for ceasing the use of USD LIBOR in new contracts, at the end of 2021. With nearly two weeks until the end of the year, the RFRWG is reminding market participants to cease entering into new contracts that use EONIA and EUR, GBP, CHF, JPY, and USD LIBORs as soon as practicable and in general terms by December 31, 2021. This follows the March 2021 announcements by the UK Financial Conduct Authority’s (FCA) and the ICE Benchmark Administrator (IBA).

    The RFRWG has recommended the adoption of the Euro Short-Term Rate (€STR) plus 8.5 basis points as the alternative to EONIA in legacy and new contracts, after the end of this year. On October 22, 2021, European Commission confirmed €STR +8.5bps as the statutory replacement for EONIA. This replacement rate will apply to all contracts and financial instruments, under the European Union Benchmarks Regulation, from January 03, 2022, that have not been transitioned to an alternative rate or updated to robust risk-free rate fallbacks. For EUR, GBP, CHF, and JPY LIBORs, the RFRWG recommends the adoption of the selected alternative risk-free rates identified by the relevant national working groups in new and legacy contracts. In addition:

    • For CHF LIBOR, the European Commission has confirmed on October 22, 2021 the designation of Swiss Average Rate Overnight (SARON) compounded in advance as the statutory replacement rate for CHF LIBOR. This replacement rate will apply to all contracts and financial instruments, under the Benchmarks Regulation, from January 01, 2022, that have not been proactively transitioned or been updated with robust risk-free rate fallbacks. 
    • For the six GBP and JPY LIBOR settings, FCA has compelled IBA to publish them under a changed “synthetic” methodology for a limited period. According to FCA, for the determination of that methodology, “the Authority has taken into account market support that has already been established on a fair way of calculating a replacement value for LIBOR—that is, the relevant risk-free rates plus the relevant ISDA spread adjustment.”
    • For USD LIBOR, the RFRWG supports guidance published by the US regulatory authorities to cease use of USD LIBOR in new contracts as of the end of 2021 (except for limited use cases). For EUR LIBOR, the RFRWG reminds market participants that there is no statutory replacement rate available. Market participants should proactively transition to an alternative benchmark rate or update to robust risk-free rate fallbacks as soon as practicable.

    The Chairman of the EUR RFRWG has sent a letter to the European Commission formally requesting the designation of a statutory replacement rate for GBP and JPY LIBORs under the European Union Benchmarks Regulation. Outcomes remain pending at this time. In addition, the RFRWG references its December 09, 2021 recommendations on the cross currency swap conventions. The statement recommends alignment with the CFTC Market Risk Advisory Committee’s part II of the risk-free rate First initiative in EU interdealer cross currency swap markets and the adoption of €STR for the EUR leg of EUR versus USD cross currency swaps in the European Union interdealer market from December 13, 2021. The RFRWG recognizes that firms may be at different stages in their transition plans but reminds all market participants to be ready for the year-end deadline. Earlier, on June 24, 2021, the European Commission, the European Banking Authority, the European Central Bank, and ESMA gad published a joint statement strongly encouraging market participants to stop using all LIBOR settings, including USD LIBOR, as a reference rate in new contracts as soon as practicable and in any event by December 31, 2021.

     

    Related Links 

    Keywords: Europe, EU, Banking, Insurance, Securities, Benchmark Reforms, LIBOR Alternatives, LIBOR, EONIA, Benchmarks Regulation, Interest Rate Benchmarks, FCA, CFTC, EC, ESMA

    Related Articles
    News

    ESAs Issue Multiple Regulatory Updates for Financial Sector Entities

    The three European Supervisory Authorities (ESAs) issued a letter to inform about delay in the Sustainable Finance Disclosure Regulation (SFDR) mandate, along with a Call for Evidence on greenwashing practices.

    November 15, 2022 WebPage Regulatory News
    News

    FSB and NGFS Publish Initial Findings from Climate Scenario Analyses

    The Financial Stability Board (FSB) and the Network for Greening the Financial System (NGFS) published a joint report that outlines the initial findings from climate scenario analyses undertaken by financial authorities to assess climate-related financial risks.

    November 15, 2022 WebPage Regulatory News
    News

    FSB Issues Reports on NBFI and Liquidity in Government Bonds

    The Financial Stability Board (FSB) published a letter intended for the G20 leaders, highlighting the work that it will undertake under the Indian G20 Presidency in 2023 to strengthen resilience of the financial system.

    November 14, 2022 WebPage Regulatory News
    News

    ISSB Makes Announcements at COP27; IASB to Propose IFRS 9 Amendments

    The International Sustainability Standards Board (ISSB) of the IFRS Foundations made several announcements at COP27 and with respect to its work on the sustainability standards.

    November 10, 2022 WebPage Regulatory News
    News

    IOSCO Prioritizes Green Disclosures, Greenwashing, and Carbon Markets

    The International Organization for Securities Commissions (IOSCO), at COP27, outlined the regulatory priorities for sustainability disclosures, mitigation of greenwashing, and promotion of integrity in carbon markets.

    November 09, 2022 WebPage Regulatory News
    News

    EBA Finalizes Methodology for Stress Tests, Issues Other Updates

    The European Banking Authority (EBA) issued a statement in the context of COP27, clarified the operationalization of intermediate EU parent undertakings (IPUs) of third-country groups

    November 09, 2022 WebPage Regulatory News
    News

    EU Finalizes Rules Under Crowdfunding Service Providers Regulation

    The European Union has finalized and published, in the Official Journal of the European Union, a set of 13 Delegated and Implementing Regulations applicable to the European crowdfunding service providers.

    November 08, 2022 WebPage Regulatory News
    News

    OSFI Sets Out Work Priorities and Reporting Updates for Banks

    The Office of the Superintendent of Financial Institutions (OSFI) published an annual report on its activities, a report on forward-looking work.

    November 07, 2022 WebPage Regulatory News
    News

    APRA Finalizes Changes to Capital Framework, Issues Other Updates

    The Australian Prudential Regulation Authority (APRA) finalized amendments to the capital framework, announced a review of the prudential framework for groups.

    November 03, 2022 WebPage Regulatory News
    News

    BIS Hub and Central Banks Conduct CBDC and DeFI Pilots

    The Bank for International Settlements (BIS) Innovation Hubs and several central banks are working together on various central bank digital currency (CBDC) pilots.

    November 03, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8596