BoE published a discussion paper on the risk-free rate transition through the provision of compounded Sterling Overnight Index Average or SONIA. To support and accelerate the widespread adoption of SONIA as a reference rate for products such as loans, BoE intends to provide simple means for users to work out the compound interest due on products without performing calculations using the underlying SONIA rate of each day. Responses to the questions posed in the discussion paper are invited by April 09, 2020. BoE also published a speech by Andrew Hauser, the Executive Director for Markets, on the BoE initiatives aimed at further supporting risk-free rate transition.
BoE and FCA are working closely with market participants to support use of SONIA as the predominant interest rate benchmark in sterling financial markets as markets transition away from LIBOR. To accelerate the adoption of SONIA as a reference rate in sterling markets, BoE is seeking views from sterling market participants on the:
- Intention of BoE to publish a daily SONIA Compounded Index to support the use of SONIA in a wide range of financial products by simplifying the calculation of compounded interest rates. SONIA Compounded Index, which is a number representing the returns from a rolling investment earning interest each day at the SONIA rate. The change in this index between any two dates could be used to calculate the interest rate payable on a SONIA product over that period. Subject to feedback, publication of the SONIA Compounded Index is anticipated to commence by the end of July 2020, with a more precise date to be communicated in the second quarter of 2020.
- Usefulness of BoE publishing a simple set of compounded SONIA Period Averages, which would give users easy access to SONIA interest rates compounded over a range of set time periods. As the set periods used to generate such averages cannot always align with those currently applied in products referencing SONIA, BoE is seeking to establish whether there is market consensus on how to define the relevant time periods. BoE is inviting comments on the options presented in this paper, after which it will decide whether publishing such averages would be helpful.
Keywords: Europe, UK, Banking, Insurance, Securities, SONIA, LIBOR, Interest Rate Benchmarks, Reference Rates, Risk-free Rates, BoE
Previous ArticleISDA, GFMA, and IIF Respond to BCBS Proposal on CVA Risk Framework
EU published Directive 2021/338, which amends the Markets in Financial Instruments Directive (MiFID) II and the Capital Requirements Directives (CRD 4 and 5) to facilitate recovery from the COVID-19 crisis.
The Standing Committee of the European Free Trade Association (EFTA) recommended that a systemic risk buffer level of 4.5% for domestic exposures can be considered appropriate for addressing the identified systemic risks to the stability of the financial system in Norway.
In a recent statement, PRA clarified its approach to the application of certain EU regulatory technical standards and EBA guidelines on standardized and internal ratings-based approaches to credit risk, following the end of the Brexit transition.
In a recently published letter addressed to the G20 finance ministers and central bank governors, the FSB Chair Randal K. Quarles has set out the key FSB priorities for 2021.
EU published, in the Official Journal of the European Union, a corrigendum to the revised Capital Requirements Regulation (CRR2 or Regulation 2019/876).
ESAs published a joint supervisory statement on the effective and consistent application and on national supervision of the regulation on sustainability-related disclosures in the financial services sector (SFDR).
EC published a public consultation on the review of crisis management and deposit insurance frameworks in EU.
HKMA announced that enhancements will be made to the Special 100% Loan Guarantee of the SME Financing Guarantee Scheme (SFGS) and the application period will be extended to December 31, 2021.
EBA launched consultations on the regulatory and implementing technical standards on cooperation and information exchange between competent authorities involved in prudential supervision of investment firms.
BoE issued a letter to the CEOs of eight major UK banks that are in scope of the first Resolvability Assessment Framework (RAF) reporting and disclosure cycle.