Featured Product

    Dave Ramsden of BoE Speaks on Transition from LIBOR

    June 05, 2019

    Dave Ramsden of BoE discussed how prepared financial firms are for the transition from LIBOR, outlining the work done and the tasks to be completed in the future. He reflects on what progress market participants are making in terms of using risk-free rate alternatives such as SONIA.

  • The information to be provided by a third party seeking authorization to assess the compliance of securitizations with the STS criteria provided for in Securitization Regulation should enable a competent authority to evaluate whether and, to what extent, the applicant meets the conditions of Article 28(1) of the Securitization Regulation. An authorized third party will be able to provide STS assessment services across EU. The application for authorization should, therefore, comprehensively identify that third party, any group to which this third party belongs, and the scope of its activities. With regard to the STS assessment services to be provided, the application should include the envisaged scope of the services to be provided as well as their geographical scope, particularly the following:

    • To facilitate effective use of the authorization resources of a competent authority, each application for authorization should include a table clearly identifying each submitted document and its relevance to the conditions that must be met for authorization.
    • To enable the competent authority to assess whether the fees charged by the third party are non-discriminatory and are sufficient and appropriate to cover the costs for the provision of the STS assessment services, as required by Article 28(1)(a) of Securitization Regulation, the third party should provide comprehensive information on pricing policies, pricing criteria, fee structures, and fee schedules.
    • To enable the competent authority to assess whether the third party is able to ensure the integrity and independence of the STS assessment process, that third party should provide information on the structure of those internal controls. Furthermore, the third party should provide comprehensive information on the composition of the management body and on the qualifications and repute of each of its members.
    • To enable the competent authority to assess whether the third party has sufficient operational safeguards and internal processes to assess STS compliance, the third party should provide information on its procedures relating to the required qualification of its staff. The third party should also demonstrate that its STS assessment methodology is sensitive to the type of securitization and that specifies separate procedures and safeguards for asset-backed commercial paper (ABCP) transactions/programs and non-ABCP securitizations.

    The use of outsourcing arrangements and a reliance on the use of external experts can raise concerns about the robustness of operational safeguards and internal processes. The application should, therefore, contain specific information about the nature and scope of any such outsourcing arrangements or use of external experts as well as the third party's governance over those arrangements. Regulation (EU) 2019/885 is based on the draft regulatory technical standards submitted by ESMA to EC.


    Related Links

    Effective Date: June 18, 2019

    Press Release
  • Proposed Rule 1
  • Proposed Rule 2
  • Proposed Rule 3
  • Presentation on Regulatory Framework (PDF)
  • Presentation on Resolution Plan Rules (PDF)
  • Mr. Ramsden highlighted that LIBOR prices-in fluctuations in the perceived credit quality of banks; however, many users, alternative risk-free reference rates are better reflections of the general level of interest rates. FCA has secured a breathing space to enable the transition, but only until the end of 2021. The best way to make the most of the timetable set for LIBOR to end is for markets to focus on transitioning away from it, to new risk-free rates. For sterling markets, to the new risk-free rate is SONIA, an overnight benchmark provided by BoE and underpinned by transactions worth about GBP 40 billion a day. The need to transition is a critical one for all involved. Risk-free rate transition is a core part of BoE’s strategic goal to catalyze reforms in financial markets to make them fairer and more effective. The good news is, transition is happening. There has been real progress in establishing SONIA as the successor to sterling LIBOR.

    In the past six months, there have been a number of positive developments in the sterling cash market. There is a need for further progress in building required infrastructure, not just to issue, but to hold, value, and risk-manage SONIA-based instruments. This progress is a positive sign, but the pace of progress needs to accelerate. There is much more to be done. BoE has a positive, market-driven plan geared toward finding ways to overcome the barriers to further transition. This is led by the Sterling Risk Free Rate Working Group, whose objective is to catalyze a broad-based transition to using SONIA. PRA and FCA took a decision to send a letter to the largest banks and insurers requesting sight of their Board-approved plans for managing the risks around LIBOR cessation. BoE and FCA have already responded to the individual firms involved and BoE published thematic findings from the exercise. The letter has achieved one of its original objectives of helping to focus senior minds on this topic. Each firm written to now has a dedicated Senior Manager under the Senior Managers regime with responsibility for overseeing the transition. 

    BoE is committed to this transition being orderly and managed. Ultimately transition needs to be market led, but will be enabled with the continued coordination and collaboration between the public and private sector. Mr. Ramsden highlighted that BoE will ensure a strong focus on the markets’ transition to SONIA through its Working Group and its Senior Advisory Group. BoE will, if needed, intensify supervisory engagement on individual firms’ plans and continue to work together with other authorities internationally, through the FSB. He concluded that firms must be focused on what needs to be done to be able to transact SONIA-based products and the firms must stop adding to their post 2021 LIBOR exposures. There is a growing recognition across market participants of what transition entails. Firms should not leave it to the last moment; they need to invest in the necessary changes now.


    Related Links

    Keywords: Europe, UK, Banking, Insurance, Securities, LIBOR, Risk-Free Rates, SONIA, Reference Rates, FCA, PRA, BoE

    Featured Experts
    Related Articles

    APRA Publishes Results of Climate Risk Self-Assessment Survey

    The Australian Prudential Regulation Authority (APRA) has published the findings of its latest climate risk self-assessment survey conducted across the banking, insurance, and superannuation industries.

    August 04, 2022 WebPage Regulatory News

    ACPR Publishes Updates Related to CRD IV and Covered Bonds

    The French Prudential Supervisory Authority (ACPR) published a notice related to the methods for calculating and publishing prudential ratios under the Capital Requirements Directive (CRD IV) and the minimum requirement for own funds and eligible liabilities (MREL).

    August 03, 2022 WebPage Regulatory News

    BIS Paper Contributes to Debate on Regulating NBFIs and Big Techs

    The Financial Stability Institute (FSI) of the Bank for International Settlements recently published a paper proposing a framework for classifying financial stability regulation as either entity-based or activity-based.

    August 03, 2022 WebPage Regulatory News

    EIOPA Publishes Guidance on Climate Change Scenarios in ORSA

    The European Insurance and Occupational Pension Authority (EIOPA) published the risk dashboard based on Solvency II data and the final version of the application guidance on climate change materiality assessments and climate change scenarios in the Own Risk and Solvency Assessment (ORSA).

    August 02, 2022 WebPage Regulatory News

    EBA and ECB Respond to Proposals on Sustainability Disclosures

    The European Banking Authority (EBA) and the European Central Bank (ECB) published their responses to the consultations of the International Sustainability Standards Board (ISSB) and the European Financial Reporting Advisory Group (EFRAG) on sustainability-related disclosure standards.

    August 01, 2022 WebPage Regulatory News

    BIS Report Notes Existing Gaps in Climate Risk Data at Central Banks

    A Consultative Group on Risk Management (CGRM) at the Bank for International Settlements (BIS) published a report that examines incorporation of climate risks into the international reserve management framework.

    July 29, 2022 WebPage Regulatory News

    EBA Publishes Multiple Regulatory Updates for Regulated Entities

    The European Banking Authority (EBA) published the final guidelines on liquidity requirements exemption for investment firms, updated version of its 5.2 filing rules document for supervisory reporting, and Single Rulebook Question and Answer (Q&A) updates in July 2022.

    July 29, 2022 WebPage Regulatory News

    EIOPA Issues SII Taxonomy and Guide on Sustainability Preferences

    The European Insurance and Occupational Pensions Authority (EIOPA) published Version 2.8.0 of the Solvency II data point model (DPM) and XBRL taxonomy.

    July 29, 2022 WebPage Regulatory News

    EESC Opines on Proposals on CRR and European Single Access Point

    The European Union published, in the Official Journal of the European Union, an opinion from the European Economic and Social Committee (EESC); the opinion is on the proposal for a regulation to amend the Capital Requirements Regulation (CRR).

    July 29, 2022 WebPage Regulatory News

    HM Treasury Publishes Multiple Regulatory Updates in July 2022

    HM Treasury published a draft statutory instrument titled “The Financial Services (Miscellaneous Amendments) (EU Exit) Regulations 2022,” along with the related explanatory memorandum and impact assessment.

    July 29, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8423