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Research and Market Commentary

Update on Benchmark Rate Reform

June 9, 2020

 

While COVID-19 has meant that some regulatory and compliance deadlines have been deferred, regulators are advising that market participants should not slow down their transition efforts away from interbank offered rates (IBORs).

 

Below, we provide an overview of recent industry developments relating to Benchmark Rate Reform, which may be of interest as you make plans for the transition.

 

  • Further to a joint statement of March 25, 2020, the FCA and the Bank of England reiterated on April 29, 2020 that firms cannot rely on LIBOR being published after the end of 2021. However, the FCA and the Bank of England have revised their expectations with respect to the issuance of LIBOR-based lending, recommending that by the end of Q1 2021, firms should cease issuing GBP-LIBOR based loans that expire after the end of 2021.

 

  • The Alternative Reference Rate Committee (ARRC) released its Key Objectives for 2020, which build on the ARRC’s progress in achieving market readiness and supporting the voluntary adoption of the Secured Overnight Financing Rate (SOFR), the ARRC’s recommended alternative to USD LIBOR. The ARRC will be publishing recommended best practices for market participants in the coming months.

 

  • The International Swaps and Derivatives Association released final results of its 2020 consultation on the implementation of pre-cessation fallbacks for derivatives referenced to LIBOR, indicating that a significant majority of respondents favour inclusion of pre-cessation and permanent cessation fallbacks for LIBOR-linked legacy trades. 

 

  • To allow participants extra time to prepare in light of COVID-19, members of the European Association of Central Counterparty Clearing Houses agreed to postpone the transition from an EONIA discounting regime to a €STR discounting regime from June 22, 2020 to July 27, 2020. The CME and LCH are maintaining their plans to transition from an Effective Fed Funds Rate discounting regime to a SOFR discounting regime on October 19, 2020. 

 

We encourage you to continue staying informed of industry developments and to seek professional advice, if necessary, to understand the potential impact these changes may have on your business. For further information, please refer to our website for various online resources, including our Benchmark Rates Regulatory DisclosureDiscontinuation of LIBOR: What’s next?, and Benchmark Rate Reform Frequently Asked Questions

 

If you have any questions about Benchmark Rate Reform, or any of this material, do not hesitate to contact your Scotiabank representative, or email us at ibor.transition@scotiabank.com.

 

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