On 29 September 2021, the Bank of England (BoE) published a policy statement setting out its final policy on the proposal to modify the scope of contracts subject to the derivatives clearing obligation, which was set out in a consultation paper that the BoE published earlier this year (Derivatives clearing obligation – modifications to reflect interest rate benchmark reform: Amendments to BTS 2015/2205).

The BoE confirms that its final policy maintains the modifications proposed in its consultation. Specifically: to remove from the scope of the clearing obligation contracts referencing EONIA, JPY Libor and GBP Libor; add certain contracts referencing €STR; and extend the maturity of contracts referencing SONIA.

The BoE’s final policy has been implemented via amendments to the onshored Commission Delegated Regulation (EU) 2015/2205 of 6 August 2015 supplementing the European Market Infrastructure Regulation.

The Policy Statement also provides the BoE’s responses to feedback to the consultation paper.

In addition, the BoE is aware of the following recent announcements by the Japanese authorities:

  • That market participants should cease the initiation of new transactions in JPY Libor swaps by no later than end September and that TONA will become the primary replacement RFR for JPY Libor in interest rate swaps.
  • That liquidity providers have been recommended to change the quoting conventions from JPY Libor to TONA in the JPY interest rate swaps market as part of a ‘TONA first’ initiative.
  • The publication of a consultation paper by the Japanese Financial Services Agency (JFSA) on 8 September 2021, which sets out the JFSA’s proposed amendments to the Japanese clearing obligation

In light of these announcements and the anticipated changes in market activity as a result of them, the BoE has also published a consultation paper which proposes to introduce a clearing obligation for OIS that reference TONA, to come into force on or shortly after 6 December 2021. The deadline for comments on the consultation paper is 27 October 2021.

The BoE will continue to monitor developments in the USD interest rate derivatives market and, where possible, coordinate with the CFTC on changes to its respective clearing obligations. With this in mind, the BoE expects to consult on changes relating to the contract type referencing USD Libor in 2022.