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Topic: Benchmarks

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European Commission publishes roadmap for European Benchmarks Regulation review

On 18 March 2020 the European Commission published a roadmap for the review of Regulation (EU) 2016/1011 on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds (“European Benchmark Regulation” or BMR). The roadmap – formal title being “inception impact assessment” – sets out the Commission’s … Continue Reading

Working Group on Euro Risk-free Rates’ factsheets on EONIA to €STR transition and EURIBOR fallbacks

The European Central Banks’s working group on euro risk-free rates has published a factsheet on EONIA to €STR transition and a factsheet on understanding EURIBOR fallbacks. The EONIA to €STR transition factsheet provides background information on why the transition is happening, a timeline and some of the key issues arising from the transition, which include: … Continue Reading

LIBOR Transition – Bank of England announces intention to publish a daily SONIA Compounded Index

Introduction On 26 February 2020, the Bank of England published a discussion paper Supporting Risk-Free Rate transition through the provisions of compounded SONIA, February 2020 (the Discussion Paper) which requested views from sterling market participants in relation to: the Bank of England’s intention to publish a daily SONIA Compounded Index; and the usefulness of the … Continue Reading

ECB working group on euro risk-free rates seeks feedback on Swaptions impacted by transition from EONIA to the €STR

On 13 March 2020, the European Central Bank (ECB) working group on euro risk-free rates launched a public consultation on whether to issue recommendations to address specific issues for swaption products as a result of the proposed transition from EONIA to the euro short-term rate (€STR). The central counterparty (CCP) discounting switch from EONIA to … Continue Reading

Loans Enablers Task Force – path to discontinuation of new GBP LIBOR lending by end-Q3 2020

On 10 March 2020, the Loans Enablers Task Force (the Task Force) of the Working Group on Sterling Risk-Free Reference Rates (the RFR Working Group) published an indicative roadmap outlining a path for the discontinuation of new GBP LIBOR-based cash lending by end-Q3 2020. This roadmap is intended to act as a guide for lenders, … Continue Reading

BoE and FCA letter to trade associations – how discontinuation of LIBOR may affect your members and stakeholders

On 9 March 2020, the Bank of England (BoE) and the Financial Conduct Authority (FCA) published a letter that they had sent to trade associations regarding how the discontinuation of LIBOR might affect their members and stakeholders. The letter explains why LIBOR is ending, how this will affect trade associations and their members, the alternatives … Continue Reading

ESMA consults on new BMR regulatory technical standards

On 9 March 2020, the European Securities and Markets Authority (ESMA) launched a public consultation on new draft Regulatory Technical Standards (RTS) under Regulation (EU) 2016/1011 on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds (“European Benchmark Regulation” or BMR). This new draft RTS follows … Continue Reading

European Benchmarks Regulation – an overview

Introduction The European Benchmarks Regulation (BMR) introduces a regime for benchmark administrators that aims to ensure the accuracy and integrity of benchmarks. The legislation was adopted in 2016 and has been in force since 2018, subject to certain transitional provisions applicable to both European and third-country benchmark administrators. In particular, European benchmark administrators had to … Continue Reading

Basel Committee newsletter – benchmark rate reforms

On 27 February 2020,  the Basel Committee on Banking Supervision published a newsletter concerning the benchmark rate reforms. Key points in the newsletter include: as the London inter-bank offered rate (LIBOR) is not expected to exist past year-end 2021, market participants should consider carefully the economic, legal and reputational risks associated with continuing to write … Continue Reading

FCA Dear CEO letter: Asset management firms – prepare now for the end of LIBOR

On 27 February 2020, the FCA published a Dear CEO letter to asset management firms concerning their preparations for the end of LIBOR. Key points in the Dear CEO letter include: asset managers should assume that LIBOR will cease after December 2021. Should an asset manager offer products or services that are exposed to or … Continue Reading

Asia Pacific market participants respond to APLMA’s IBOR Transition survey

Last September, the LMA published Exposure Drafts of Compounded RFR Facilities Agreements by reference to SOFR and SONIA (being the chosen replacement near risk free rates for USD markets and LIBOR in the Sterling respectively), along with a commentary inviting market participants to consider various structuring issues (see earlier blog). The APLMA recently sought feedback from … Continue Reading

LMA invites market participants to comment on outstanding requirements to be satisfied before recommended forms of compounded risk free rate facilities agreements can be finalised

In September 2019, the Loan Market Association published exposure drafts of Compounded Risk Free Rate Facility Agreements by reference to SONIA and SOFR, being the chosen replacement near risk free rates for LIBOR in the Sterling and USD markets respectively together with commentary inviting market participants to consider various structuring issues which need to be … Continue Reading

ISDA updates IBOR Fallback Rate Adjustments FAQs and workstreams table

On 6 February 2020, the International Swaps and Derivatives Association (ISDA) published an updated version of its FAQs on IBOR Fallback Rate Adjustments. The FAQs insert a new question and answer on whether fallbacks are “benchmarks” for regulatory purposes. ISDA responds to this question by stating: It is important to keep in mind that the … Continue Reading

FCA Dear CEO letter to benchmark administrators on supervision strategy

On 28 January 2020, the FCA published a Dear CEO letter (dated 24 January 2020) setting out the regulator’s view of the potential harm as well as the underlying drivers that benchmark administrators could pose to their customers and the markets in which they operate. The FCA sees three main ways in which benchmark administrators … Continue Reading

FCA and IBA response to ISDA letter providing clarity of implications of non-representative LIBOR

On 24 January 2020, the FCA published a letter from Richard Fox, FCA Head of Markets Policy, to the International Swaps and Derivatives Association (ISDA) (dated 20 January 2020) explaining why market participants should not assume that any period of non-representative LIBOR based on reduced panel bank submissions would last for more than a short … Continue Reading

Working Group on Sterling Risk-Free Reference Rates: progress on the transition of LIBOR – referencing legacy bonds to SONIA by way of consent solicitation

On 16 January 2020, the Working Group on Sterling Risk-Free Reference Rates (RFRWG) published a statement entitled “Progress on the transition of LIBOR – referencing legacy bonds to SONIA by way of consent solicitation“.  In the statement, the RFRWG welcomes the consent solicitations that have already taken place or are underway to transition legacy bond … Continue Reading

Working Group on Sterling Risk-Free Reference Rates: The use cases of benchmark rates: compounded in arrears, term rate and further alternatives

On 16 January 2020, the Working Group on Sterling Risk-Free Reference Rates (RFRWG) published a paper on The use cases of benchmark rates: compounded in arrears, term rate and further alternatives. The paper is addressed to financial firms and non-financial end users, such as corporates, small to medium size enterprises, retail consumers and others, who … Continue Reading

Progress on the transition of LIBOR – referencing legacy bonds to SONIA by way of consent solicitation

On 16 January 2020, the Working Group on Sterling Risk-Free Reference Rates (RFRWG) published a statement entitled Progress on the transition of LIBOR – referencing legacy bonds to SONIA by way of consent solicitation.  The statement is intended to encourage participants in the sterling bond market (including sterling floating rate notes, covered bonds and securitisations) … Continue Reading

LIBOR transition: the use of SONIA compounded in arrears in project finance transactions

In its paper of 16 January 2020 on The use cases of benchmark rates: compounded in arrears, term rate and further alternatives, the Bank of England’s Working Group on Sterling Risk-Free Reference Rates (RFRWG) identified, among other things, that it had considered whether SONIA compounded in arrears would be appropriate to replace LIBOR as the … Continue Reading

Next steps for LIBOR transition in 2020: the time to act is now

On 16 January 2020, the Bank of England (BoE), Financial Conduct Authority (FCA) and the Working Group on Sterling Risk-Free Reference Rates (RFRWG) published the following documents outlining priorities and milestones for 2020 on LIBOR transition: RFRWG’2 2020 priorities and milestones. The top five RFRWG priorities are: (i) cease issuance of GBP LIBOR-based cash products … Continue Reading

Working Group on Sterling Risk-Free Reference Rates market consultation published on credit adjustment spread methodologies

The Working Group on Sterling Risk-Free Reference Rates has published a market consultation on credit adjustment spread methodologies for fallbacks in cash products referencing GBP LIBOR to assist cash markets, including the syndicated lending market, consider methodologies for credit adjustment spreads for fallbacks from LIBOR to a SONIA-derived rate that operate from a trigger date … Continue Reading

FMLC response to Commission consultation on BMR review

On 31 December 2019, the Financial Markets Law Committee (FMLC) published its response to the European Commission’s consultation on the review of the Benchmark Regulation (BMR). The FMLC welcomes the Commission’s review of the BMR, which was published in October 2019, noting that the BMR has had a significant impact on the financial markets. For … Continue Reading

FSB report on the need to reduce risks to financial stability from LIBOR transition

On 18 December 2019, the Financial Stability Board (FSB) published its annual progress report on the implementation of its 2014 recommendations to reform major interest rate benchmarks. The report emphasises that the continued reliance of global financial markets on LIBOR poses risks to financial stability and the FSB calls for significant and sustained efforts by … Continue Reading
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