On 12 November 2019, the working group on euro risk-free rates published a report on fallback arrangements for the euro short-term rate (€STR).
The report provides supervised entities with guidance on potential ways to comply with Article 28.2 of the EU Benchmarks Regulation (BMR) when using the euro short-term rate (€STR), as the euro risk-free rate, in contracts.
Article 28.2 of the BMR requires supervised entities to have robust written plans setting out the actions they would take in the event that a benchmark materially changes or ceases to be provided. Those plans should be reflected in the contractual relationship with clients. Where feasible and appropriate, the plans should include the nomination of one or several alternative benchmarks that could be referenced to substitute the benchmarks no longer provided, indicating why such benchmarks would be suitable alternatives.
The working group recommends that market participants consider existing methodological review procedures of €STR, including the fallback provisions provided by the working group in the EONIA to €STR Legal Action Plan, published in July 2019.