Circular 3/2021 of the Bank of Spain modifying the definition of the Euro short-term rate (€STR) reference interest rate in Circular 5/2012

I. GENERAL PROVISIONS BANK OF SPAIN 8104 Circular 3/2021, of May 13, of the Bank of Spain, which modifies Circular 5/2012, of June 27, to credit entities and payment service providers, on transparency of banking services and responsibility in the granting of loans, with respect to the definition of the reference interest rate based on the Euro short-term rate (€STR).

I The main objective of this circular is to adapt the definition of the index based on the Euro short-term rate (€STR), for the purpose of its consideration as an official rate, contained in Annex 8, section six, of Circular 5/2012, of June 27, to credit entities and payment service providers, on transparency of banking services and responsibility in the granting of loans, following the publication of European Central Bank Guideline (EU) 2021/565, of March 17, 2021, amending Guideline (EU) 2019/1265 on the euro short-term rate (€STR) (ECB/2021/10), which establishes the preparation and daily publication, starting from April 15, 2021, of composite average rates based on the €STR.

II Following the modification introduced by Order ETD/699/2020, of July 24, regulating revolving credit, in Article 27 of Order EHA/2899/2011, of October 28, on transparency and customer protection in banking services, that provision includes in its section 1.f), among the reference indices considered official interest rates, the "Reference interest rate based on the Euro short-term rate (€STR)", empowering this order for the Bank of Spain to establish the definition and the process for determining official interest rates [third final provision, section 2.a)].

Bank of Spain Circular 1/2021, of January 28, modified Circular 5/2012 to establish, among other matters, the definition, for the purpose of its consideration as an official rate, of the reference interest rate based on the €STR, which is collected in section six of Annex 8 of said circular as "the interest rate at different tenors that the European Central Bank prepares based on the Euro short-term rate (€STR) interest rate and publishes through its Statistical Data Warehouse (SDW), or through any other means by which it disseminates such information."

As explained in the statement of reasons of Circular 1/2021, of January 28, at the time of its publication, the ECB, in its capacity as administrator of that index, was finalizing the preparation of a multi-term index based on the €STR, which it planned to publish, and said multi-term index would acquire, once the ECB began its publication, the consideration of official reference interest rate based on the €STR, referred to in Article 27.1.f) of Order EHA/2899/2011, of October 28.

To this end, as the ECB has made public in Guideline ECB/2021/10, said multi-term index based on the €STR will begin to be published from April 15.

Guideline ECB/2021/10 describes the methodology used by the ECB in the calculation of composite rates based on the €STR, determining for the calculation of these composite rates the use of historical information of the daily values of the €STR and its obtaining as the average of the observed data of the €STR over a time interval, whose amplitude coincides with the respective tenors (one week, one month, three months, six months, and twelve months) for which they are calculated.

Given that the ECB has established in its Guideline ECB/2021/10 a daily dissemination of the €STR index in its various tenors, it is considered appropriate that the official rate based on the €STR index be defined by reference to the daily data corresponding to the last TARGET2 business day of the month, according to the TARGET2 calendar, for each of the various tenors disseminated by the ECB, considering this option the most adequate for reasons of simplicity and usefulness for the market.

III This circular consists of a single provision and a final provision.

The single provision collects the modification proposed to be introduced in the definition of the €STR index provided for in section six of Annex 8 of the aforementioned Circular 5/2012, of June 27, following the publication of Guideline ECB/2021/10, where the procedures for determination and the dissemination rules of the composite average rates based on the €STR are collected.

The sole final provision provides that this circular shall enter into force the day after its publication in the "Boletín Oficial del Estado", so that the rule is in force as soon as possible for the Bank of Spain to proceed to the monthly publication of the official rates, after the start of the publication of composite average rates based on the €STR by the ECB.

In this circular, the principles of necessity, efficacy, proportionality, legal certainty, transparency, and efficiency regulated in Article 129 of Law 39/2015, of October 1, on the common administrative procedure of Public Administrations, are complied with, insofar as it achieves the pursued ends without imposing unnecessary or accessory burdens, regulating exclusively the essential aspects, in a coherent manner with the rest of the legal system.

In accordance with what is provided in Article 133.4 of Law 39/2015, of October 1, it has not been considered necessary to carry out a prior public consultation procedure, given that the regulatory proposal does not have a significant impact on economic activity, does not impose relevant obligations on the recipients, and is limited to regulating partial aspects of the content of Circular 5/2012, of June 27 (specifically, the definition of the reference rate based on the €STR, which is only one of the several contemplated in Annex 8 of that circular); and since there are reasons of public interest justifying it, given the convenience of its entry into force as soon as possible for the Bank of Spain to proceed to the monthly publication of the official rates.

This circular has been submitted to the procedures of hearing and public information, in order to allow the participation of the affected sectors and of citizens in general.

Consequently, in exercise of the powers granted, the Governing Council of the Bank of Spain, on the proposal of the Executive Committee, and in agreement with the Council of State, has approved this circular, which contains the following rule:

Single Provision. Modification of Circular 5/2012, of June 27, to credit entities and payment service providers, on transparency of banking services and responsibility in the granting of loans.

The following modification is introduced in section 6 of Annex 8, on "Official reference interest rates of the mortgage market: definition and determination process", of Circular 5/2012, of June 27, which shall read as follows:

"6. Reference interest rate based on the Euro short-term rate (€STR). It is defined as the value that the last TARGET2 business day of the month has the multi-term composite interest rate (one week, one month, three months, six months, and twelve months) that the European Central Bank prepares based on the Euro short-term rate (€STR) interest rate and publishes through its Statistical Data Warehouse (SDW), or through any other means by which it disseminates such information."

Sole Final Provision. Entry into force. This circular shall enter into force the day after its publication in the "Boletín Oficial del Estado".

Madrid, May 13, 2021.–The Governor of the Bank of Spain, Pablo Hernández de Cos.