EC to Replace CHF LIBOR and EONIA

European Commission has nominated the replacement rates for two interest rate benchmarks, the Swiss Franc London Interbank Offered Rate (CHF LIBOR) and the Euro Overnight Index Average (EONIA).

These two publicly available reference rates, which will be phased down by the end of 2021, served as the foundation for a variety of financial contracts, including mortgages, bank overdrafts, and other more complicated financial transactions. From January 1, 2022, two new rates will automatically replace CHF LIBOR and EONIA in contracts and financial instruments.

Given that contracts referencing CHF LIBOR and EONIA will continue to remain in force, the Commission has taken steps to maintain financial stability and clarity for individuals and enterprises.

The replacement of existing benchmarks is part of a global endeavor to shift away from the risky LIBOR and toward considerably safer and risk-free benchmark rates. After years of huge manipulations by bank cartels, the UK FCA, which monitors LIBOR, decided to end the benchmark.

The new Swiss Franc risk-free rate SARON is the nominated replacement rate for CHF LIBOR. References to the euro risk-free rate €STR will take the place of EONIA references.

In both circumstances, an adjustment spread is used to prevent excessive value transfer. Today's designation is the result of public deliberations on the subject and is in the best interests of all EU citizens and businesses involved in such arrangements.

As of January 1, 2022, the statutory replacement will be automatic, and contracts will be able to continue without the need for contract parties to intervene. Parties can, nevertheless, opt to revise bilateral contracts. The statutory replacement does not apply when parties opt to do so.