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 July 2020. You will find more details in our monthly EY IBOR Transition Newsletter, to which you may subscribe through the following link.

In the Eurozone, the European Commission proposed to amend EU rules on financial benchmarks. The proposal aims to create a new framework to have a statutory replacement rate – a rate that the Commission can designate by law – in place by the time LIBOR is no longer in use. The replacement rate would be available for all legacy contracts concluded by supervised entities, irrespective of potential use or time restrictions that might be associated with the exercise of a conversion rate mandated by a regulator outside the EU. The Commission is also considering setting up a working group with Member States to ensure the smooth transition of all LIBOR referencing contracts to the statutory replacement rate in a uniform way.

Further, the Investment Association in collaboration with EY have published a report “Time to Act Now: LIBOR transition for investment managers”. Based on a survey of members, the report outlines steps firms should look to take, including:

  • Monitoring industry conventions and market liquidity by asset class and jurisdiction to ensure firms transition plans align with global developments;
  • Assessing opportunities and risks for clients and incorporating this into the transition strategy;
  • Embedding conduct risk and controls across all transition-related activity in line with regulatory expectations;
  • Communicating with clients, counterparties and vendors, identifying concerns, and evidencing how these have been solved in the best interest of clients;
  • Updating contracts and documentation across the firm to reflect the shift to SONIA and risk-free replacement rates for other currencies; and
  • Ensuring operational readiness for the transition with both internal and third-party providers.

In Switzerland, the CHF LIBOR transition continues with SARON mortgages launched by Bank Cler. This follows the movement initiated by other major Swiss banks which launched their SARON mortgages earlier this year.

In the US, the ARRC released a tool to help firms move internal systems and processes away from LIBOR. This document classifies transition activities into 10 key categories, e.g. Risk Controls, Financial Controls and Trade Risk Management, and lists out the transition steps and activities for market participants to consider.

Below is the full list of IBOR transition related developments included in our July 2020 IBOR transition newsletter.  

Swiss highlights:

  • Bank Cler announced SARON mortgages

Eurozone specific highlights:

  • ECB WG on RFR published letter to IASB on potential accounting issues from IBOR reform
  • AFME published EURIBOR benchmark rate modification language for securitizations
  • LCH released €STR Rate Change Notice
  • EU Commission proposed to modify EU rules on financial benchmarks
  • ECB announced public consultation on the publication of compounded €STR rates

International highlights:

  • FSB issued a statement on the impact of COVID-19 on global benchmark reform
  • FSB and the Basel Committee published a report on issues associated with benchmark transition
  • IAIS released a report on supervisory issues associated with benchmark transition from an insurance perspective
  • HKMA set bank LIBOR transition milestones  
  • HKEX cleared first HONIA swaps through OTC clear
  • BoE and the Federal Reserve Bank hosted “LIBOR: Entering the Endgame” webinar
  • ISDA held an IBOR transition conference
  • ASIFMA published IBOR transition guide for Asia
  • ISDA published a new IBOR transition brochure “Benchmark Reform at a Glance”
  • Bloomberg started publishing calculations related to ISDA IBOR Fallbacks
  • ISDA published “Interest Rate Benchmarks Review: H1 of 2020 and 2Q of 2020”
  • LMA updated the list of loans referencing RFR
  • ISDA launched RFR adoption indicator
  • The Investment Association in collaboration with EY launched the LIBOR transition report for investment managers
  • ISDA SwapsInfo weekly analysis: July 2020

UK specific highlights:

  • The BoE announced it will publish SONIA Compounded Index from August 3, 2020
  • PRA published a statement on LIBOR transition
  • The GBP RFRWG issued materials on LIBOR transition

US specific highlights:

  • Financial regulators published statement on handling the LIBOR transition
  • Statement on IOSCO compliance for Federal Reserve Bank of New York administered reference rates including SOFR
  • The ARRC announced the SOFR Summer Series
  • The ARRC released a tool to help firms move internal systems and processes away from LIBOR
  • The ARRC released conventions related to using SOFR in arrears for syndicated loans