The European Central Banks’s working group on euro risk-free rates has published a factsheet on EONIA to €STR transition and a factsheet on understanding EURIBOR fallbacks.
The EONIA to €STR transition factsheet provides background information on why the transition is happening, a timeline and some of the key issues arising from the transition, which include:
- EONIA to €STR transition path;
- impact on derivatives, secured cash products, securities referencing EONIA, and financial models;
- risk management and accounting implications; and
- legal action plan.
The EURIBOR fallbacks factsheet provides background information on what fallback provisions and their main elements (trigger event, fallback rate, spread adjustment) are, as well as why they are needed in financial contracts (including the relevant regulatory requirements). It also contains a high level overview of the working group’s five recommendations on EURIBOR fallback provisions, as well as summarising both its risk management and accounting considerations and the market association’s work on fallbacks.
Two public consultations on EURIBOR fallbacks are envisaged for Q2 2020, with recommendations expected for June 2020. One will be on the EURIBOR fallback rate and methodologies for the credit spread adjustment and related market conventions, with the other focusing on trigger events and operational considerations.
Finally, the working group is developing guidance on how to amend existing legacy contracts and financial instruments referencing EURIBOR to embed fallback provisions in existing documentation for different asset classes. The guidelines are set to be published in Q2 2020.
