The transition from Interbank Offered Rates (IBOR) to Alternative Risk-Free Rates (RFRs) has an impact on all financial and non-financial institutions operating with the impacted floating reference rates. It effects a wide range of financial instruments on the derivative and cash markets.

This blog edition highlights notable developments made publicly available by the global regulatory community, industry working groups and/or infrastructure providers over the month of May 2020.

An important May 2020 news for the Swiss franc rates market is that UBS and Luzerner Kantonalbank have launched the floating-rate mortgage loans tied to SARON. This follows similar announcement by two other Swiss banks in April. The key market players and product issuers, including investment banks, are developing and launching more RFR-based products, in the aim of meeting the regulatory transition deadline.

In the sterling rate market, the highlight of May 20202 is the extension of deadline for banks to cease new lending linked to sterling Libor by six months to March 2021.  A joint statement was published by FCA, BOE and RFRWG on the impact of COVID-19 on the timeline for firms’ LIBOR transition plans, where the regulators recognised the challenges presented by the current operating environment due to the pandemic. RFRWG provided recommendations on the LIBOR transition regarding the sterling LIBOR linked loans. In the meantime, BoE reinstated the importance of IBOR transition to be completed by the end of 2021 and highlighted that the current COVID-19 situation and market volatility have further exposed the weaknesses of LIBOR. 

In the USD rates market, a notable news is the publication of “Best Practices for Completing Transition From LIBOR announced by ARRC”, which outlines datebased guidance on near-term transition steps across various products, including floating rate notes, business loans, consumer loans, securitisations and derivatives.  This aims to assist market participants as they prepare for the cessation of USD LIBOR before the 19-month deadline.

Below is the full list of IBOR transition related developments included in our May 2020 IBOR transition newsletter. If you would like to receive EY’s monthly IBOR Transition Newsletter, you may subscribe through the following link.

Swiss highlights:

  • Meeting of the National Working Group on Swiss Franc Reference Rates
  • UBS launches SARON mortgages
  • Luzerner Kantonalbank launches SARON mortgages
  • Development of SARON

Eurozone specific highlights:

  • Summary of the public consultation on swaptions impacted by the CCP discounting transition from EONIA to the €STR
  • ECB published updated planning on EONIA-€STR transition and EURIBOR fallback language implementation in the wake of COVID-19

International highlights:

  • Bloomberg IBOR fallbacks test data and FAQs
  • ISDA publishes report summarizing final results of consultation on pre-cessation fallbacks for LIBOR
  • ISDA responds to EFRAG pre-consultation on interest rate benchmark reform
  • ICE Swap Rate – expansion of the input data
  • ISDA SwapsInfo weekly analysis

UK specific highlights:

  • BoE and PRA released a statement regarding additional prioritisation measures due to COVID-19, including IBOR transition
  • Presentation by FCA at the Association of Corporate Treasurers webinar
  • No rating impact on Lloyds’ covered bonds from conversion to SONIA
  • LMA listing RFR referencing syndicated and bilateral loans executed to date
  • GBP RFR Working Group’s paper on the identification of tough legacy contract issues

US specific highlights:

  • ARRC statement on the use of SOFR Index in FRNs
  • ARRC issues supplemental consultation on spread adjustment methodology
  • ARRC releases best practices for vendors’ transition to SOFR and vendor readiness survey results
  • ARRC Outreach/Communications Working Group co-chairs on industrywide use of SOFR
  • New financial sub-index proposed by Markit
  • ARRC released recommendation for voluntary compensation for swaptions impacted by the CCP discounting transition to SOFR
  • ARRC extends comment period for feedback on consultation on fallback language for new variable rate private student loans
  • ARRC announces best practices for completing transition from LIBOR
  • EurexOTC Clear service: transition from Fed Funds to SOFR
  • Fannie Mae’s and Freddie Mac’s IBOR transition plans