Welcome to KPMG’s latest issue of our monthly LIBOR newsletter in which we provide updates on LIBOR and other benchmark interest rate developments that directly impact banks and consider the potential implications of the related regulatory requirements.

Regulatory Updates

1. Bank of England publishes statement on conventions for referencing SONIA in new contracts

The Bank of England published a statement and an aggregated summary of responses to the March 2019 Discussion Paper on Sterling Over Night Index Average (SONIA) conventions and referencing SONIA in new contracts. The statement seeks to consolidate the responses to the discussion paper and provide further information for market participants’ consideration on SONIA referencing conventions across bonds, loans, and derivatives. The Bank of England aims to further support template documentation and liquidity in SONIA referencing products.

August 2019 Bank of England


2. Bank of England publishes working paper on loans processing

The European Central Bank (ECB) wrote to the European Commission and the European Securities and Markets Authority (ESMA) regarding the implications of contract amendments with respect to the use of interest rates on margin requirements under European Market Infrastructure Regulation (EMIR).

August 2019 Bank of England
(Working Paper on loans processing / Updated infrastructure and systems priority list


3. ECB publishes report on impact of the transition from EONIA to the €STR on cash and derivatives products

The European Central Bank (ECB) published a report containing a set of recommendations addressing the impact of the transition from the euro overnight index average (EONIA) to the euro short-term rate (€STR). The report analyses the various financial products and processes affected by the transition, covering secured and unsecured cash products, securities, investment funds, derivatives, and models referencing EONIA. The report urges market participants to prepare for the change in EONIA’s publication time and the discontinuation of EONIA on 3 January 2022.

19 August 2019 ECB

Industry Update

1. ISDA selects Bloomberg as fallback adjustment vendor

The International Swaps and Derivatives Association (ISDA) announced that Bloomberg Index Services Limited (BISL) has been selected to calculate and publish adjustments related to fallbacks that ISDA intends to implement for certain interest rate benchmarks in its 2006 ISDA Definitions. As a third-party service provider, BISL will ensure the adjustments are calculated in a fair and independent manner, based on the methodology chosen following various industry consultations.

31 July 2019 ISDA


2. IOSCO issues statement on benchmarks transition

The International Organization of Securities Commissions (IOSCO) issued a statement on communication and outreach to inform relevant stakeholders regarding benchmarks transition. The statement contains a number of key messages for market participants including the emphasis that RFRs would provide a robust alternative to IBORs and can be used in the majority of products. The statement also urged that the inclusion of robust fallbacks should be considered a priority.

31 July 2019 IOSCO


3. ARRC releases Matrix and Comparison Chart on SOFR Floating Rate Notes Conventions

The Alternative Reference Rates Committee (ARRC) released the Secured Overnight Financing Rate (SOFR) Floating Rate Notes (FRNs) Conventions Matrix. The Matrix identifies considerations relevant to using SOFR in new floating rate notes and supplements the ARRC Paper “A User’s Guide to SOFR”. The Matrix is accompanied by the SOFR FRNs Comparison Chart which outlines conventions already being used in the market. Both documents were developed to help market participants as they consider issuing or investing in a SOFR-based FRN and may be updated or supplemented periodically.

1 August 2019 ARRC


4. ISDA publishes preliminary results of benchmark fallbacks consultation on pre-cessation issues

ISDA published a statement on the preliminary results of the consultation on pre-cessation issues for LIBOR and certain other interbank offered rates (IBORs). Respondents expressed a wide variety of views regarding whether and how to implement a pre-cessation “non-representativeness” trigger for derivatives. Respondents also expressed a number of issues for consideration related to the potential pre-cessation trigger. ISDA will continue to seek advice from independent advisors, government and regulatory agencies on these issues.

9 August 2019 ISDA

Contact Us

Simon Topping
Regulatory Advisory
KPMG China
Tom Jenkins
Partner, Head of Financial
Risk Management
KPMG China
Michael Monteforte
Financial Risk Management
KPMG China
Marie Gervacio
Partner, Financial Risk Management
KPMG China
Edwin Hui
IT Advisory
KPMG China
Desmond Yu
Associate Director,
Financial Risk Management
KPMG China