Featured Product

    BoE Notice on Eligibility of LIBOR-Linked Collateral for Use in SMF

    May 07, 2020

    BoE issued a Market Notice on its risk management approach to collateral referencing London Inter-bank Offered Rate (LIBOR) for use in Sterling Monetary Framework or SMF. All LIBOR-linked collateral, regardless of the issuance or origination date, will be ineligible for use in Sterling Monetary Framework from December 31, 2021. Also, all LIBOR-linked loans issued on or after April 01, 2021 will be ineligible for use in the Sterling Monetary Framework.

    According to the notice, all collateral securities issued on or after April 01, 2021 and maturing after December 31, 2021 will be ineligible for use in the Sterling Monetary Framework where:

    • Coupon pays a rate of interest calculated by reference to LIBOR
    • Embedded swap payments are calculated by reference to LIBOR
    • One or more loans in the portfolio are a LIBOR-linked loan originated after April 01, 2021, in case where the collateral securities are backed by loans

    However, LIBOR-linked collateral may otherwise still be requested for eligibility until December 31, 2021. BoE will monitor market developments in relation to fallback language and will keep under review the potential to distinguish between LIBOR-linked collateral with robust fallback language and that without, as market practice develops. The current intention of BoE is to update the list of eligible securities that are impacted by this policy on a monthly basis.

    Pursuant to the notice, a haircut add-on will also be applied to all LIBOR-linked collateral. It will be 10 percentage points from April 01, 2021, 40 percentage points from September 01, 2021 and 100 percentage points from December 31, 2021. In respect of loan portfolios containing both LIBOR-linked loans (maturing after December 31, 2021) and other loans, the Sterling Monetary Framework participants may choose to either remove the LIBOR-linked loans from the loan portfolios, or alternatively split these loan portfolios subject to them meeting the standard collateral eligibility requirements of BoE. Throughout this notice, LIBOR refers to GBP LIBOR, USD LIBOR, EUR LIBOR, JPY LIBOR and CHF LIBOR. 

    Related Link: Market Notice

    Keywords: Europe, UK, Banking, Securities, LIBOR, Credit Risk, Fallback Language, Risk-free Rates, Sterling Monetary Framework, Haircut, Benchmark Reforms, BoE

    Related Articles

    UK Authorities Consult on Implementation of Basel 3.1 Standards

    The UK authorities have published consultations with respect to the Basel requirements for banks. The Prudential Regulation Authority (PRA) published the consultation paper CP16/22 on rules for the implementation of Basel 3.1 standards.

    November 30, 2022 WebPage Regulatory News

    ESAs Issue Multiple Regulatory Updates for Financial Sector Entities

    The three European Supervisory Authorities (ESAs) issued a letter to inform about delay in the Sustainable Finance Disclosure Regulation (SFDR) mandate, along with a Call for Evidence on greenwashing practices.

    November 15, 2022 WebPage Regulatory News

    FSB and NGFS Publish Initial Findings from Climate Scenario Analyses

    The Financial Stability Board (FSB) and the Network for Greening the Financial System (NGFS) published a joint report that outlines the initial findings from climate scenario analyses undertaken by financial authorities to assess climate-related financial risks.

    November 15, 2022 WebPage Regulatory News

    FSB Issues Reports on NBFI and Liquidity in Government Bonds

    The Financial Stability Board (FSB) published a letter intended for the G20 leaders, highlighting the work that it will undertake under the Indian G20 Presidency in 2023 to strengthen resilience of the financial system.

    November 14, 2022 WebPage Regulatory News

    ISSB Makes Announcements at COP27; IASB to Propose IFRS 9 Amendments

    The International Sustainability Standards Board (ISSB) of the IFRS Foundations made several announcements at COP27 and with respect to its work on the sustainability standards.

    November 10, 2022 WebPage Regulatory News

    IOSCO Prioritizes Green Disclosures, Greenwashing, and Carbon Markets

    The International Organization for Securities Commissions (IOSCO), at COP27, outlined the regulatory priorities for sustainability disclosures, mitigation of greenwashing, and promotion of integrity in carbon markets.

    November 09, 2022 WebPage Regulatory News

    EBA Finalizes Methodology for Stress Tests, Issues Other Updates

    The European Banking Authority (EBA) issued a statement in the context of COP27, clarified the operationalization of intermediate EU parent undertakings (IPUs) of third-country groups

    November 09, 2022 WebPage Regulatory News

    EU Finalizes Rules Under Crowdfunding Service Providers Regulation

    The European Union has finalized and published, in the Official Journal of the European Union, a set of 13 Delegated and Implementing Regulations applicable to the European crowdfunding service providers.

    November 08, 2022 WebPage Regulatory News

    OSFI Sets Out Work Priorities and Reporting Updates for Banks

    The Office of the Superintendent of Financial Institutions (OSFI) published an annual report on its activities, a report on forward-looking work.

    November 07, 2022 WebPage Regulatory News

    APRA Finalizes Changes to Capital Framework, Issues Other Updates

    The Australian Prudential Regulation Authority (APRA) finalized amendments to the capital framework, announced a review of the prudential framework for groups.

    November 03, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8597