Working Group updates (2019 onwards)
Working Group announcements: maintaining progress towards key 2020-2021 milestones – July 2020
On 28 July 2020, the Working Group on Sterling Risk-Free Reference Rates published materials to help firms to prepare for, and implement, LIBOR transition plans.
The Working Group has updated and revised its priorities and roadmap for 2020-2021. This update reflects progress made since the previous roadmap was published in January 2020, and includes more granular milestones to manage the transition away from Sterling LIBOR-linked products by end-2021.
The Working Group has published a question and answer document on its revised end-Q3 milestones for loan markets. This documents explains which loan products fall within the scope of the Q3 milestones and also explains the actions that market participants should take to reduce their reliance on LIBOR ahead of end-2021 and transition to alternative rates.
Roundtable with HMT following recent announcements
On 23 June 2020, HMT announced they are planning to enhance the toolkit of the FCA to deal with the wind-down of critical benchmarks, such as LIBOR, by amending the UK Benchmarks Regulation. This would create a possible way of reducing disruption to holders of 'tough legacy' LIBOR contracts by enabling a continued publication of LIBOR using a different and more robust methodology.
HMT, the FCA and the Bank of England would like to invite you to an online roundtable on 6 August 2020 from 10am to 11am as an opportunity to put forward questions in relation to the HMT and FCA statements and published Q&A.
This event is open to all market participants, not solely those who are members of the working group on sterling risk-free reference rates. Please send expressions of interest and submit questions in advance by 30 July 2020 at noon to RFR.Secretariat@bankofengland.gsi.gov.uk.
Non-Linear Derivatives Task Force
Between December 2019 and February 2020 the Working Group on Sterling Risk-Free Reference rates conducted a survey to understand preferences on conventions for the trading of interbank SONIA swaptions and caps and floors. In the course of this work, and subsequent feedback from market participants, the Working Group identified a clear need for further transition work on non-linear derivatives and so has agreed to set up a new non-linear derivatives task force.
The task force will work to progress and raise awareness of conventions for new RFR-based non-linear products. It will also support discussions on the transition of legacy Libor products in these markets. This is a highly specialised work-stream, and expressions of interest from those with demonstrable expertise to contribute to the task force are welcomed. If you would like more information, or to express your interest, please contact RFR.Secretariat@bankofengland.co.uk.
Paper on the identification of Tough Legacy issues
Tough legacy contracts are considered those that do not have robust fallbacks and prove unable to be amended ahead of LIBOR discontinuation. The industry-led RFR Working Group's Tough Legacy Taskforce has considered 'tough legacy' issues across asset classes in the UK, and has concluded that there is a case for action to address these exposures. The case for action differs by asset class, depending on the contracts involved and the ability to amend the terms. While many contracts will be able to successfully transition, this may be more difficult where, for example (i) contracts form part of complex transactions or arrangements (ii) distribution is broad and there may be additional complications with obtaining the necessary consent (iii) retail counterparties are involved.
To the extent it is feasible, the Taskforce proposes that the UK Government considers legislation to address ‘tough legacy’ exposures. However, the Taskforce recognises that there is no guarantee that such a solution will materialise, that it will materialise across all relevant legal jurisdictions, or that it would be available for all products and circumstances. The Taskforce also recognises that any potential solution may not be economically neutral or suitable for particular contracts.
The RFRWG calls on market participants to continue to focus on active transition, as this is the only way for parties to have certainty over the timing and substance of transition. The approaches explored in this paper are relevant only for those contracts that cannot be dealt with in any other way.