On 14 December 2020, the chair of the European Securities and Markets Authority (ESMA), Steven Maijoor, delivered a speech at the third roundtable on euro risk-free rates.
Key points in the speech include:
- In one year from now, ESMA will substitute the Belgian FSMA as supervisor of EURIBOR administrator, EMMI.
- The FSMA has already authorised EMMI as administrator of EURIBOR under the Benchmarks Regulation. EU supervised entities can therefore continue using EURIBOR for the foreseeable future.
- The EMMI developed and implemented the so-called hybrid methodology, used to calculate EURIBOR. ESMA considers this hybrid methodology robust, resilient and transparent, as well as compliant with the Benchmarks Regulation.
- Market participants must include fallback provisions in their EURIBOR contracts. Fallback provisions are recognised as the most effective way to increase contractual robustness and they are increasingly becoming an industry standard across different jurisdictions. In addition, Article 28(2) of the Benchmarks Regulation requires supervised entities to include fallback provisions in their contracts referencing benchmarks, such as EURIBOR.
- ESMA calls on all market participants to take every necessary action to ensure the full and timely transition from EONIA to €STR. Financial firms should now actively use €STR instead of EONIA in all their new contracts, as well as in their internal systems and calculations. An increased use of €STR in derivative contracts will have a twofold beneficial effect. First, it will ensure a smooth discontinuation of EONIA in one year’s time. Secondly, it will allow the calculation of a solid EURIBOR fallback rate based on the €STR forward-looking term structure.