BoE released a statement on behalf of the Working Group on Sterling Risk-Free Reference Rates. The statement provides an update on progress in the adoption of SONIA in sterling markets, including work underway to develop a term benchmark based on that risk-free rate. The statement highlights that, in the derivative markets, the share of swaps traded using SONIA is already broadly equivalent to that linked to LIBOR.
It is now just over a year since the BoE implemented reforms to the SONIA interest rate benchmark, improving the sustainability and representativeness of the chosen alternative risk-free reference rate in UK. Following that change, sterling-denominated financial markets have begun to shift decisively away from LIBOR and toward SONIA. In the derivative markets, the share of swaps traded using SONIA is already broadly equivalent to that linked to LIBOR. Liquidity and open interest in SONIA futures is also growing steadily. SONIA is also being adopted in cash markets. SONIA-linked Floating Rate Notes (FRNs) have rapidly become the market norm and LIBOR-linked sterling FRN issuance beyond 2021 has all but ceased. Recent weeks also saw the issuance of the first distributed SONIA-linked Residential Mortgage-Backed Security (RMBS). Looking ahead, the next goal is to reduce reliance on LIBOR in other sterling cash markets, including loans.
Given the rapid development of liquidity in markets referencing overnight SONIA, the Working Group anticipates that corporate borrowers will increasingly prefer contracts that reference compounded overnight SONIA. For those already able and willing to do so, the Working Group encourages providers and users of such products to press ahead with their transition efforts, thus reducing the risk of disorderly adjustment closer to end-2021 and helping to develop liquidity in SONIA-referencing markets even further. The Working Group also supports the work underway to develop a term benchmark based on the sterling risk-free rate, known as a Term SONIA Reference Rate (TSRR).
In December 2018, the Working Group had published a statement inviting interested benchmark administrators to consider the summary of responses to the TSRR consultation and to share any views on the development of such benchmarks. Three administrators (FTSE Russell, ICE Benchmark Administration, and Refinitiv) have confirmed that they are working on the development of a TSRR, with each delivering a short factual presentation to the Working Group at a meeting on May 14, 2019. Over the remainder of 2019, the Working Group expects that administrators will work to establish if a robust TSSR, compliant with international standards, can be produced on a timetable consistent with the broader transition work. The Working Group welcomes these developments and has established a new Task Force to ensure that this work remains on track.
FCA and PRA in the UK, FED in the US, and the authorities in Singapore have fined Goldman Sachs for risk management failures in connection with the 1Malaysia Development Berhad (1MDB).
BCBS announced that OSFI and the Bank of Canada hosted the 21st International Conference of Banking Supervisors (ICBS) virtually on October 19-22, 2020.
FCA proposed guidance on how firms should continue to seek to help customers who hold insurance and premium finance products and may be in financial difficulty because of COVID-19, after October 31, 2020.
EBA issued an opinion on prudential treatment of the legacy instruments as the grandfathering period nears an end on December 31, 2021.
ESRB published the fifth issue of the EU Non-bank Financial Intermediation Risk Monitor 2020 (NBFI Monitor).
HM Treasury announced that the new Financial Services Bill has been introduced in the Parliament.
APRA announced that it has increased the minimum liquidity requirement of Bendigo and Adelaide Bank for failing to comply with the prudential standard on liquidity.
PRA published the consultation paper CP17/20 to propose changes to certain rules, supervisory statements, and statements of policy to implement elements of the Capital Requirements Directive (CRD5).
US Agencies adopted a final rule that applies to advanced approaches banking organizations and aims to reduce interconnectedness in the financial system as well as to reduce contagion risks associated with the failure of a global systemically important bank (G-SIB).
US Agencies (FDIC, FED, and OCC) adopted a final rule that implements the net stable funding ratio (NSFR) for certain large banking organizations.