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With ESMA’s regulatory perspective, our main aim now is the adoption by EU supervised entities of fallbacks in new and existing contracts. This is necessary to ensure that the relevant provisions of the Benchmarks Regulation are complied with by benchmark users. The goal of these provisions is to increase contractual robustness and enhance financial stability in the EU financial system. We know that benchmarks play a central role in financial markets, and that they are also an important building block of contracts, including retail contracts like mortgages. Fostering a wide adoption of reliable and effective fallbacks, across different asset classes, would surely promote stable and orderly financial markets that can deal with worst-case scenarios in relation to benchmarks. This, in turn, would enhance both the protection of investors in benchmarks and their clients, making sure that their interests are safeguarded in all scenarios.
As regulators, we are aware that the implementation of the fallback provisions has been slow to date, that is why this morning I would like to reinforce the message about the importance of introducing fallbacks in new and existing contracts.
This brings me to the second challenge where ESMA considers the role of the working-group to be decisive.
Thanks to the good work done by the ECB, as of next week the eurozone will have a new and reliable interest rate that is based exclusively on transactions, €STR. While the ECB will provide market participants with a new rate that meets the highest standards in terms of transparency and governance, it will be then up to market forces to translate €STR into a success story.
I believe that the working-group can play a key role in the broad adoption of €STR. The role of €STR goes clearly beyond being the base rate for fallbacks to EURIBOR or EONIA.
By the end of the year, the Benchmarks Regulation will be amended by two EU legislative texts. The first focuses on climate benchmarks, and this text will introduce new types of benchmarks that would help fostering sustainable finance in the EU. This text will also amend the Benchmarks Regulation in a way that the transitional period for critical benchmarks, such as EURIBOR and EONIA, and for third country benchmarks will be extended by two years and end on 31 December 2021.