Given the prominent role IBORs currently play in capital markets, acting as the reference rates for trillions of Euros of financial contracts such as bonds, securitisations and derivatives, we believe it is vital that concerted and coordinated action is taken to ensure a smooth transition to new risk-free rates (RFRs).
Andrew Bailey, Chief Executive of the FCA, has stated on numerous occasions, the first time in July 2017, that the FCA will no longer persuade, or compel, panel banks to submit to Libor after the end of 2021, at which point the future of LIBOR becomes uncertain.
In June 2018 AFME jointly published the IBOR Global Benchmark transition report with ISDA, ICMA and SIFMA. The report presents the results of a survey with 150 banks, end users, infrastructures and law firms in 24 countries, and assesses the issues involved with benchmark reform. Its findings highlight the scale of the work which still needs to be done by industry to ensure full readiness for the transition. It also makes specific recommendations for steps firms can take to be fully prepared. The Report remains a useful introductory document.
AFME also co-ordinates carefully with other trade associations including SIFMA, GFMA, ICMA and ISDA. ISDA in particular is playing a key role due to the much larger size of the derivatives markets. Most of our fellow trade associations have similar pages to this on their websites.
AFME also contributes to the work of Bank of England’s Working Group on Sterling Risk-Free Reference Rates and the private sector working group on euro risk-free rates.
In December 2019, in collaboration with international law firm Simmons & Simmons, published the first in a series of papers, entitled "LIBOR Transition: Managing the Conduct and Compliance Risks'
AFME model wording for securitisations
As the leading European trade association for securitisations, AFME has published model wording for new issues of securitisation bonds to help facilitate the transition from IBORs to new risk-free rates. The model wording provides an easier mechanism for the transition to an alternative rate when LIBOR/EURIBOR is no longer available. It does not identify a new rate but makes the procedure for moving to such a rate (once identified) easier, by avoiding the need to undertake a consent solicitation.
The model wording has been well received by the authorities and we have been pleased with its wide adoption across the market which, together with the very rapid adoption of SONIA for sterling securitisations in recent months, represents good progress. Much work remains, of course, to deal with the difficult challenges of transitioning legacy deals.