ECB published a consultation, which was launched by the working group on euro risk-free rates, on recommendations to address the legal implications for new and legacy contracts referencing the euro overnight index average (EONIA), as a result of the proposed transition from EONIA to the euro short-term rate (€STR). Responses to this consultation should be sent by June 12, 2019.
The consultation describes the different legal options discussed by the working group over the last few months to ensure a smooth transition from EONIA to €STR. Market participants are invited to give feedback on the recommended legal actions to ensure a market-wide smooth transition from EONIA to €STR. The consultation on the EONIA to €STR Legal Action Plan is structured into four sections—
- Recommended EONIA fallback rate that should be used on cessation of EONIA in new and legacy contracts, wherever possible and appropriate
- Continued use of EONIA in new contracts
- Legacy contracts maturing before December 2021, which is the EONIA discontinuation date
- Legacy contracts maturing after December 2021
The working group recommends that market participants consider replacing EONIA with €STR as a reference rate for all products and contracts and that they make all operational adjustments necessary for using €STR as their standard benchmark as soon as possible. It is recommended that new contracts referencing EONIA include robust fallback provisions and an acknowledgement that references to EONIA will be understood to be references to EONIA as modified after the change to its methodology on October 02, 2019. For legacy contracts referencing EONIA and maturing after December 2021, market participants should consider replacing EONIA as a primary rate as soon as possible or embedding robust fallback clauses referencing the recommended fallback rate for EONIA. Additionally, the working group intends to recommend €STR plus a spread (the one-off computation of the difference between €STR and EONIA in the context of the proposed recalibrated EONIA methodology) as the EONIA fallback rate.
The EONIA to €STR Legal Action Plan covers legacy and new contracts referencing EONIA in different asset classes (derivative transactions, collateral agreements, and cash products) and was developed by the working group in close cooperation with the relevant trade associations and a group of law firms that are members of the subgroup on contractual robustness. This consultation follows the publication of a set of general guiding principles for fallback provisions in new contracts for euro-denominated cash products and the recommendations on the transition path from EONIA to €STR, which the working group issued in January and March 2019, respectively. ECB will evaluate all the responses and prepare a summary of the feedback received. This summary will be discussed by the working group and published on the ECB website, along with the other documents related to the meeting of the working group on July 04, 2019.
Comment Due Date: June 12, 2019
Keywords: Europe, EU, Banking, Securities, EONIA, €STR, Legal Action Plan, Risk-Free Rates, Interest Rate Benchmarks, Fallback Provisions, ECB
Previous ArticleSam Woods of PRA Speaks About Style of Regulation in UK After Brexit
BIS published a paper that provides an overview on the use of big data and machine learning in the central bank community.
APRA finalized the reporting standard ARS 115.0 on capital adequacy with respect to the standardized measurement approach to operational risk for authorized deposit-taking institutions in Australia.
ECB published a guide that outlines the principles and methods for calculating the penalties for regulatory breaches of prudential requirements by banks.
MAS and The Association of Banks in Singapore (ABS) jointly issued a paper that sets out good practices for the management of operational and other risks stemming from new work arrangements adopted by financial institutions amid the COVID-19 pandemic.
ACPR announced that a new data collection application, called DLPP (Datalake for Prudential), for collecting banking and insurance prudential data will go into production on April 12, 2021.
BCB announced that the Financial Stability Committee decided to maintain the countercyclical capital buffer (CCyB) for Brazil at 0%, at least until the end of 2021.
EIOPA has launched a European-wide comparative study on non-life underwriting risk in internal models, also kicking-off of the data collection phase.
SRB published an overview of the resolution tools available in the Banking Union and their impact on a bank’s ability to maintain continuity of access to financial market infrastructure services in resolution.
EBA is consulting on the implementing technical standards for Pillar 3 disclosures on environmental, social, and governance (ESG) risks, as set out in requirements under Article 449a of the Capital Requirements Regulation (CRR).
ESAs Issue Advice on KPIs on Sustainability for Nonfinancial Reporting