With the end of LIBOR drawing closer, the FCA, Bank of England and the Working Group on Sterling Risk-Free Reference Rates (the Working Group) are encouraging market participants to actively transition from referencing LIBOR rates in their loan agreements to risk-free rates (such as SONIA). In this respect, one important aspect that market participants need to consider is the credit spread adjustment (CAS) that will be required. Market participants use a CAS to mitigate the risk of value transfer when transitioning to risk-free rates due to the difference between LIBOR rates and the risk-free rates, caused by the lack of a credit risk premium in risk-free rates.

Continue Reading UK Working Group Publishes Paper on Credit Adjustment Spread Methodologies

Several remarks and releases by public officials and significant regulatory bodies in the first weeks of November garnered significant attention by financial institutions trying to discern next steps in the wind-down of USD LIBOR.

Continue Reading Signals or Noise in November for LIBOR Transition?

In a statement made on September 29, 2020, the Financial Conduct Authority (FCA) and Bank of England endorsed a proposal by the Working Group on Sterling Risk-Free Reference Rates (the Working Group) that the interdealer quoting convention should change such that prices be linked to SONIA, rather than LIBOR. This change was originally to be implemented from March 2, 2020, but has been delayed due to the COVID-19 pandemic.

Continue Reading FCA, Bank of England Urge Shift in Swaps Quoting Conventions to Assist in Transition From LIBOR

Update: The Bank of England has delayed the introduction of increased haircuts to apply to all LIBOR linked collateral. For more details, please refer to our July 28 post.

The FCA and the Bank of England (BoE) have encouraged market participants to switch from LIBOR to SONIA from March 2, 2020 in all new trades.  Some market participants have already started referencing RFRs.  For the year to date ending on March 6, 2020 the following notionals* (as published by ISDA) were traded.

RFR Traded Notional Trade Count
SOFR $222.9 billion 998
SONIA $7.1 trillion 6,304
€STR $0.9 billion 16
SARON $4.2 billion 9
TONAR $76.3 billion 178


Continue Reading Recent Commentary from the UK Financial Conduct Authority (FCA) and Bank of England