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The IBOR Reform: ECB Dear CEO Letter

The IBOR Reform: ECB Dear CEO Letter

The ECB has written to CEOs of significant institutions asking them to present an IBOR reform risk summary and a detailed plan of action for the transition

In a letter addressed to the CEOs of significant institutions (PDF 49 KB), the ECB has requested information from the boards of major banks within the euro area on the benchmark reform. The letter requests for that firms provide:

  • A board-approved summary of your institution's assessment of key risks relating to the benchmark reform and a detailed action plan to:
    • Mitigate such risks;
    • Address pricing issues;
    • Implement process changes.
  • Contact points at a management level who are in charge of overseeing the implementation of these action plans.

The banks have been asked to submit this by 31 July 2019.

Following two public consultations, the ECB published a clearly defined transition path for EONIA in May 2019 and announced that €STR would be launched on 2 October 2019. To ensure a smooth transition ahead of the 2021 deadline specified by the EU Benchmark Regulation (BMR), the working group on euro risk-free rates is currently planning on providing recommendations on the transition from an operational point of view ahead of the publication of the €STR. This will include a view on the financial accounting and risk management issues that might occur as a result.

Due to the widespread use of benchmark rates and the complexity of the transition routes, the ECB has requested that significant institutions also complete a template, by 15 September, which includes an assessment of EONIA, EURIBOR and LIBOR exposures by product type and a qualitative assessment of the risks associated with aspects of the change to the current benchmark environment.

This follows a similar exercise completed by the PRA and FCA in 2018, which gave UK banks two months to respond and the resulting feedback was recently published with one clear message; firms need to accelerate their preparations in order to meet the 2021 LIBOR cessation date.

With four weeks to initially respond to the ECB's CEO Letter, European banks have a noticeably shorter period to outline their key risks and action plans. Their responses will provide a quantitative as well as a qualitative assessment of the transition's impact. It will make transparent how well banks' have progressed in preparing for the cessation of EONIA and the change to €STR and reformed EURIBOR (PDF 460 KB).

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