On 16 November 2021, the European Securities and Markets Authority (ESMA) published a letter from James von Moltke, the Chairman of the EURO Risk Free Rates Working Group (RFR WG), to the European Commission, regarding discussions on the potential designation of statutory replacement rates for GBP LIBOR and JPY LIBOR.
Among other things the letter notes that the RFR WG and a task force convened after a working group meeting on 1 July 2021 to consider solutions for GBP and JPY LIBOR contracts referencing the 1, 3 and 6 months tenors of the mentioned rates are of the view that within the remit of the EU Benchmarks Regulation, full legal certainty can only be achieved with the designation of a statutory replacement rate. To ensure alignment with the UK approach, several options to designate a replacement rate have been identified and discussed in the task force and the RFR WG, including referring to the methodology/components underlying the synthetic LIBOR (i.e. term RFR plus ISDA spread). The letter adds that there was agreement that all of the options create certain challenges in terms of either full alignment with the UK approach or operational aspects (including the fact there is no certainty whether synthetic LIBOR will continue to be published after the end of 2022). The RFR WG is open to further discussion on the most appropriate approach under the circumstances.