Summary of CySEC's Circular C394

Memo #37-2020

CySEC Circular No: C394
Date: 29/06/2020

Subject: Interest Rate Benchmarks – Reform of short-term interest rates such as London Interbank Offered Rate LIBOR and EURIBOR and transition to Risk Free Rates (RFRs)
Purpose: To inform about the latest developments with regards to LIBOR and EURIBOR.

In Summary:

CySEC has issued the Circular C394 on 29/06/2020 in order to inform the Cyprus Investment Firms (‘CIFs’), Administrative Service Providers (‘ASPs’), Undertakings for Collective Investment in Transferable Securities (‘UCITS’), UCITS Management Companies (‘UCITS MC’), Alternative Investment Fund Managers (‘AIFMs’), Alternative Investment Funds (‘AIFs’) and the Alternative Investment Funds with a Limited Number of Persons(‘AIFLNPs’), about the latest developments with regards to LIBOR (London Interbank Offered Rate) and EURIBOR.

LIBOR is currently produced in 7 tenors (overnight/spot-next, one week, one month, two months, three months, six months and twelve months) across five currencies (USD, GBP, EUR, JPY and CHF), based on submissions by 20 panel banks, which reflect the rate at which banks may borrow money on unsecured terms in wholesale markets.

LIBOR is expected to cease to exist after the end of 2021. Until then, the LIBOR panel banks have voluntarily agreed to continue to provide to LIBOR rates, in order to ensure a period of smooth transition.

LIBOR ending is a market event and the transition to alternatives is a market led.

LIBOR is deeply embedded in current business practices and it seems that transition will be complex and will take time.

In the context of transition away from LIBOR, regulatory authorities and central banks have identified alternative RFRs for each of the 5 LIBOR currencies. These are:
• Secured Overnight Financing Rate (SOFR) - Jurisdiction: United States of America
• Sterling Overnight Index Average (SONIA) - Jurisdiction: United Kingdom
• Swiss Average Rate Overnight (SARON) - Jurisdiction: Switzerland 
Tokyo Overnight Average Rate (TONAR) - Jurisdiction: Japan Euro short term rate
• Euro short-term rate (€STR) - Jurisdiction: Euro-zone.

This Circular refers in more details about the alternative RFRs that have been identified.

Furthermore, in 2019, EURIBOR was authorised as a compliant benchmark under the Commission Delegated Regulation 2018/1643 (“BMR Regulation”) and as such, participants in the capital markets are able to use EURIBOR.

Here it is noted that Regarding EONIA, that stands for Euro Over Night Index Average (the EONIA rate is the 1-day interbank interest rate for the Euro zone. In other words, it is the rate at which banks provide loans to each other with a duration of 1 day. Therefore, EONIA can be considered as the 1-day Euribor rate), it will continue to be published until 3rd January 2022, in order to ensure smooth transition to €STR.

For up to date information regarding euro risk free rates, the Regulated Entities are encouraged to visit the webpage of the Working group on euro risk-free rates at the following link :

CySEC expects that Regulated Entities are proactive on this matter and take all necessary steps to remove any dependencies on LIBOR by the end of 2021, where appropriate. Regulated Entities should ensure that their board of directors and senior management understand the risks associated with the expected cessation of LIBOR and transition to alternative RFRs, and are taking appropriate actions in identifying, measuring and monitoring such risks.

Read the CySEC Circular C394

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