CSSF reminder to UCIs and IFMs as Benchmark Users on the Cessation of EONIA and LIBOR
PSL - Senior Associate
19 November 2021
On 19 November 2021, the CSSF published a press release 21/28 on the communication to undertakings for collective investments (UCIs) and investment fund managers (IFMs) in the context of the imminent cessation of the major used interest benchmarks EONIA and LIBOR.
UCIs and IFMs called to find alternative rates and implement fallback provisions
The CSSF reminds all IFMs and UCIs subject to its supervision and using benchmarks to ensure that:
- they have taken all necessary action in view of a smooth transition to alternative rates to EONIA and to LIBOR;
- they have in place robust fallback provisions covering a possible cessation of any other benchmarks used by them (if any) (in accordance with article 28(2) of the Benchmarks Regulation); and
- they reflect in the contractual relationship with investors such fallback provisions.
Multiple deadlines for the replacement of EONIA and LIBOR
EONIA will be discontinued on 3 January 2022.
- cease to exist on 31 December 2021 for GBP, EUR, CHF and JPY settings, the 1-week and 2-month USD settings and on 30 June 2023for the remaining USD settings; and
- continue to be published with a change of methodology (known as synthetic) for 1-month, 3-month and 6-month GBP and JPY LIBOR settings until the end of 2022. These synthetic LIBOR GBP and JPY settings, however, are not intended to be used for new contracts but only for legacy contracts that holders are unable to amend.
€STR and SARON endorsed by the European Commission (EC)
EONIA should be replaced by the risk-free rate €STR in accordance with the Commission Implementing Regulation (EU) 2021/1848, while LIBOR should be replaced by SARON for the CHF settings in accordance with the Commission Implementing Regulation (EU) 2021/1847.
SONIA and SOFR recommended by industry working groups
Given that it is uncertain whether the EC will designate replacement benchmarks with respect to GBP, JPY and USD settings, the CSSF encourages UCIs and IFMs to take necessary actions to reduce exposure to LIBOR rates. The CSSF mentions in particular that SONIA was recommended by the UK Working Group on Sterling Risk Free Rates and SOFR by the US Alternative Reference Rates Committee as alternative rates for GBP LIBOR settings.
EURIBOR fallback recommendations
Finally, while EURIBOR may continue to be used for existing and new contracts/instruments, the CSSF draws the attention of IFMs and UCIs on the fallback trigger events and rates recommended by the European Central Bank working group to support market participants in developing contractual fallback provisions.
IFMs and UCIs may contact the CSSF by e-mail at firstname.lastname@example.org in case they face any difficulties in the transition or finding alternative rates.