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29 October 2019

ESMA's Maijoor delivers speech on benchmarks

Steven Maijoor, Chair of the European Securities and Markets Authority (ESMA), spoke about ESMA’s role under the Benchmarks Regulation and more generally in the global reform of interest rates.

ESMA also plays a crucial role in the implementation of the 3rd country regimes under the Regulation. Following the equivalence decision by the European Commission (Commission) in respect of the Australian benchmark regime, I have recently signed a Memorandum of Understanding with the Chair of the Australian Securities and Investments Commission (ASIC). This Memorandum of Understanding sets out the cooperation arrangements between the European Union (EU) and Australia in respect of the oversight of Australian benchmarks. In the next weeks we expect to finalise a similar Memorandum of Understanding with the Monetary Authority of Singapore, and more should follow next year.

ESMA also provides National Competent Authorities with advice every time they recognise 3rd country administrators, or when Authorities identify a benchmark as a critical benchmark at national level, such as WIBOR in Poland or STIBOR in Sweden.

Additionally, a key role for ESMA under the Regulation is being a member of the colleges of European critical benchmarks. There are currently two colleges: the one in charge of LIBOR, chaired by the UK Financial Conduct Authority, and the one in charge of both EURIBOR and EONIA, chaired by the Belgian Financial Services and Markets Authority, the FSMA. ESMA has been a member of both colleges since their creation, promoting effective, efficient and consistent functioning of these two colleges.

As you can tell the Regulation has kept us very busy in recent years and will continue to do so in the future, with an upcoming review of the Regulation by the Commission and more technical standards to be drafted by ESMA. But in parallel to this regulatory work, ESMA has been and is an active player in the on-going global reform of interest rates.

We are a member of the Financial Stability Board’s Official Sector Steering Group, which gathers experts on risk-free rates from all continents and has been one of the main engines behind the reform of interest rates in many jurisdictions. We also participate in the IOSCO Task-Force on Financial Benchmarks thanks to which, back in 2013, IOSCO published the IOSCO Principles for Financial Benchmarks on which the EU’s Benchmarks Regulation is clearly based.

Towards the end of 2017, we decided to establish in the EU the EUR Working Group on euro risk-free rates together with the ECB, the Commission and the FSMA. The Working Group first met in February 2018 and is composed of leading European banks, including several Spanish banks. [...]

Although the first publication of €STR was less than a month ago, market participants are reacting very rapidly to this new reality. A large clearing house is already offering clearing of Euro-denominated swaps benchmarked to €STR, while the European Investment Bank already issued 1 billion of short-term bonds linked to €STR. It seems that we already have all the elements to make €STR a success story.

Together with the publication of €STR, at the beginning of October the value of EONIA became anchored to the value of €STR. The smooth transition to the new methodology of EONIA is an important accomplishment for the Working Group, who first proposed the new methodology which was subsequently adopted by the EONIA administrator, EMMI.

EMMI has applied for authorisation of EONIA a few weeks ago and the FSMA is working with ESMA and the College to finalise the assessment of the EONIA application before the end of the year. [...]

There is a clear commitment by the administrator of EURIBOR and the public sector to sustain EURIBOR and the work will continue in the next years to ensure that the panel of banks contributing to EURIBOR is stable and representative. While the support for EURIBOR by all stakeholders should not be underestimated, there is an additional message I would like to share with you today.

The Regulation requires EU supervised entities to produce and maintain robust written plans setting out the actions they would take if a benchmark they are using materially changes or ceases to be provided. Supervised entities should reflect these written plans in the contractual relationship with their clients by means of fallback clauses introduced in the relevant contract.

Just as for all benchmarks authorised under the Regulation, fallback clauses are needed for EURIBOR too. This is because users, and their clients, should be able to know in advance what will happen to their contracts if EURIBOR ceases to be provided. 

The Working Group is about to publish an important recommendation regarding the implementation of fallback provisions in contracts referencing EURIBOR and I would invite all of you to carefully consider this upcoming recommendation. [...]

Full speech on ESMA


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