On 25 April 2019, a press release and letter were published through which the Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten, the AFM) and the Dutch Central Bank (De Nederlandsche Bank, DNB) asks financial institutions for the preparations and actions they are taking to manage transition from critical benchmarks such as LIBOR to alternative, risk-free benchmarks by 2022.

The joint letter from the AFM and DNB (the Letter) is addressed to the chairs of the management boards of large financial institutions in the Netherlands and relates to the ongoing worldwide interest rate benchmark reforms, and in particular the envisaged transition from critical interest rate benchmarks to alternative risk-free rates (RFRs). The AFM and DNB call on market parties to analyse the risks of the transition (e.g. operational, legal, valuation and hedging risks) and to take appropriate action to ensure that they are prepared in time. Besides preparing for the aforementioned transition, the AFM and DNB also call on market parties to contribute to the development of RFRs.

In the Letter, the two Dutch regulatory authorities emphasise that EURIBOR, LIBOR and EONIA are no longer sustainable in their existing form; they are no longer an accurate representation of the (interbank) rate which they should be measuring and may possibly not comply with the requirements of the EU Benchmarks Regulation (BMR). The BMR will come (fully) into force when the transitional regime for the use of existing financial critical (interest rate) benchmarks of index providers who are not yet subject to supervision will end on 1 January 2022. This means that the existing benchmarks, even after possible reforms, are no longer suitable for use in long-term contracts. This applies to both existing contracts and to contracts that will be entered into as of 1 January 2022 on the basis of critical benchmarks. In addition, if benchmarks used in existing contracts will no longer be offered, a suitable alternative must be ready for use.

The Letter contains 16 questions for financial institutions and the AFM and DNB require answers (via email to benchmarks@afm.nl) ultimately by 17 June 2019. The questions relate to, among other things, the use of interest rate benchmarks, identified suitable alternative benchmarks, identified risks associated with the transition to alternative benchmarks, and the steps the financial institution has taken and intends to take to prepare for the transition (e.g. which scenarios have been identified, how many people are working on the preparation, is there a dedicated project team). After reviewing the information received, the AFM and DNB will present their findings in mid-September 2019 and provide sector-wide feedback in an aggregated and anonymous manner. In addition, the regulatory authorities may ask certain financial institutions to enter into more detailed discussions.

View the AFM’s press release (Dutch only), 25 April 2019.

View the Letter (Dutch only), 25 April 2019.