Ibor Transition
Background
A significant decline in interbank lending and some high-profile instances of LIBOR manipulation resulted in the recommendation in 2014 by the Financial Stability Board to transition away from LIBOR and other IBORs to new alternative rates.
In response to this and subsequent announcements from the UK Financial Conduct Authority and other regulators globally, industry working groups were established to develop the new risk free rates (“RFRs” and also known as “alternative reference rates”) that are expected to replace LIBOR and other IBORs. LIBOR has an expected cessation date of 31 December 2021.
Singapore dollar benchmarks
In Singapore, the Singapore Dollar Interbank Offered Rate (“SIBOR”) and the Singapore Dollar Swap Offer Rate (“SOR”) are expected to be replaced with the Singapore Overnight Rate Average (“SORA”).
The Association of Banks in Singapore (ABS), the Singapore Foreign Exchange Market Committee, and the Steering Committee for SOR & SIBOR Transition to SORA have established timelines for the discontinuation of SIBOR by end-2024, and identified the SORA as the most suitable alternative reference rate to replace SIBOR.
The SOR relies on USD LIBOR in its computation methodology, and hence the SOR will be discontinued together with the USD LIBOR benchmark after end-2021.
Further updates and details can be obtained from the ABS website on the SOR and SIBOR transition to SORA - https://abs.org.sg/benchmark-rates/sor-sibor-to-sora.
New risk free rates
The new RFRs which have been identified are as follows:
Current benchmark rate | New risk free rate |
Sterling LIBOR | SONIA (Sterling Overnight Index Average) |
US dollar LIBOR | SOFR (Secured Overnight Financing Rate) |
Yen LIBOR | TONAR (Tokyo Overnight Average Rate) |
Swiss franc LIBOR | SARON (Swiss Average Overnight Rate) |
Euro LIBOR | ESTER (Euro Short Term Rate) |
Singapore dollar SOR | SORA (Singapore Overnight Rate Average) |
Schroders’ transition plan
The Schroders group has a robust plan for the effective management of the impact on our clients investments with us as a result of the transition away from LIBOR and has established a dedicated team responsible for this task.
Schroders has completed an assessment to determine the impacts of the transition away from LIBOR, and certain other key IBOR, to RFR for our clients and our business. As part of this impact assessment we have analysed the work required to transition investments, change legal documents and update operational and technology systems.
Impact of the benchmark transition
Which investment products will be affected by the transition?
Investment products which uses LIBOR or SOR as a reference rate will be affected. This may include derivatives, floating rate notes, fixed income bonds or other debt securities. Credit facilities which uses LIBOR or SOR as a reference rate will also be affected.
These investment products or credit facilities will be reviewed to assess if the relevant consequences are stated in the terms of the relevant contract.
Where we provide discretionary investment management services to you, we will also assess the impact of the transition away from LIBOR on your portfolio. Where the benchmarks for your portfolio reference IBORs, we will contact you on any course of action that you may be required to take as part of the transition.
What action is required?
There is no immediate action required from you. If necessary, we will contact you on any course of action that you may be required to take as part of the transition. Please also look out for relevant notices from the issuer or counterparties.
If you have any investment products or credit facilities that reference LIBOR or SOR, which are held in custody with a third party custodian, please reach out to your third party custodian on their benchmark transition plan.
Further information
The following websites also provide additional information:
https://www.iosco.org/library/pubdocs/pdf/IOSCOPD636.pdf
https://www.newyorkfed.org/arrc
https://www.bankofengland.co.uk/markets/transition-to-sterling-risk-free-rates-from-libor
https://abs.org.sg/benchmark-rates/sor-sibor-to-sora
Important Information: This document should not be considered as legal or regulatory advice or relied upon as such. We encourage all our clients to seek independent legal or other professional advice in respect of their legal and regulatory obligations and their financial circumstances.