The public consultations of the draft of the regulatory technical standard on the designation of a statutory replacement for certain settings of CHF LIBOR ended on 31 August, 2021. The draft provides rates designated as replacement for the CHF LIBOR in references to CHF LIBOR in contracts and financial instruments. Pursuant to the draft, the CHF LIBOR is to be replaced by the Swiss Average Rate Overnight (SARON) administered by SIX Swiss Exchange Financial Information AG. The designated rates will replace references to CHF LIBOR on 1 January 2022, being the date on which LIBOR (not only CHF LIBOR, but also other LIBOR currency rates, except for certain USD LIBOR rates) will cease to be published. SARON will serve as a statutory replacement for CHF LIBOR tenors, particularly the 1-month, 3-month, 6-month and 12-month tenors, used in products such as savings accounts, mortgages and loans, including consumer credit agreements and small business loans, governed by the laws of one of the Union Member States, which do not contain suitable fall-back provisions. In case of such agreements and financial instruments the replacement will be made by operation of law, with no need to enter into annexes, unless a parties of a given agreement or financial instrument would like to apply a different replacement.
This is especially important not only for Poland, which has the greatest number of outstanding retail mortgages in the Union, mostly expiring after 2021, but also for other Member States, in which banks have used CHF LIBOR as a reference rate in a large number of outstanding retail mortgage contracts, i.e. Austria, Slovenia, the Netherlands, and France.
It should be noted that no replacements for LIBOR currency rates other than CHF (i.e. EUR, GBP, JPY, USD) have been indicated by the Commission.
In case of USD LIBOR, certain tenors, i.e. other than 1-week and 2-month, will be published until 30 June 2023, which gives time for finding replacements for these rates. As for 1-month, 3-month and 6-month tenors for GBP and JPY, the Financial Conduct Authority (FCA) may require continued publication of LIBOR rates calculated on a ‘synthetic’ basis, for 1 additional year, i.e. until end-2022. Any ‘synthetic’ LIBOR shall not be used in new contracts. The ‘synthetic’ LIBOR should be used in the so-called tough legacy contracts only. FCA intends to confirm its final decisions on ‘synthetic’ LIBOR in Q4 2021.
Contact Adam Stopyra and Michał Torończak for more information.