The European Association of Co-operative Banks (EACB) has long been advocating for legislative tools that would provide legal certainty for the transition of critical benchmarks, in particular relating to the migration of EONIA to €STR (References: LINK 1, LINK 2, LINK 3, LINK 4).
It is thus very positive news that the European Commission has legally recognised that the cessation of EONIA and CHF LIBOR is likely to have a significantly disruptive impact on the remaining legacy contracts and financial instruments referencing these benchmarks. In this context, we fully support that the Commission has used its powers under Article 23a of Regulation (EU) 2016/1011 (“the Benchmarks Regulation”) to publish implementing regulations that designate as statutory replacement rates:
- €STR as published by the European Central Bank + 8,5 bp fixed spread adjustment, following the discontinuation of EONIA on 3 January 2022; and
- SARON compounded (“last reset” methodology) + fixed rate adjustment (corresponding to the respective tenor if 1 month, 3 month, 6 month or 12 month), following the cessation of CHF LIBOR on 1 January 2022.
The EACB believes that the implementing regulations are the best risk management measures in the event of serious contract frustration that could affect financial stability and legal liability across the EU, due to the many pending legacy contracts still referencing both contracts. In addition, the implementing regulations also provide the necessary legal certainty required by consumers and investors.
We greatly appreciate that the European Commission has also clarified some uncertainties regarding the statutory replacement rates, but we recognise that some further clarifications may still be required. More information on these clarifications can be found in our position papers HERE and HERE.