This document is provided by Standard Chartered Bank and its affiliates (SCB) for general information only. This document does not supersede any specific product risk disclosures. Whilst SCB endeavours to ensure the information in this note is current, SCB cannot guarantee its accuracy in this rapidly evolving area. In addition, SCB does not represent that the risks highlighted in this document are complete. You should exercise your own independent judgment and seek your own professional advice, where necessary, with respect to the risks and consequences of entering into any financial contracts or purchasing any financial instruments that include a reference to financial indices and reference rates (Benchmarks).
Old Benchmarks, such as Interbank Offered Rates (IBORs) and in particular, the London Interbank Offer Rate (LIBOR), have been or are in the process of being reformed by the financial services industry, regulators and administering bodies. The terms of new or amended financial contracts and instruments should reflect alternative rates and associated alternative rate conventions, including fallback options.
Please note that any application (or not) of fallbacks, any replacement or synthetic rate may cause a change in the value of existing transactions and you are encouraged to obtain independent advice on your position.
SCB’s new product offerings do not include any Benchmark that has ceased or is unrepresentative.
New Benchmarks that are being adopted by the market to replace those that have ceased include (but are not limited to) the following:
- USD LIBOR: Secured Overnight Financing Rate (SOFR);
- GBP LIBOR: Sterling Overnight Index Average (SONIA);
- EUR LIBOR and EONIA: €STR;
- CHF LIBOR: Swiss Average Rate Overnight (SARON); and
- JPY LIBOR: Tokyo Overnight Average Rate (TONA).
The new Benchmarks set out above are known as risk-free rates or RFRs relating to their respective currencies.
Cessation of Benchmarks and ‘synthetic’ rates
From 1 July 2023, the FCA compelled the continued publication of 1-, 3- and 6-month USD LIBOR settings under an unrepresentative ‘synthetic’ methodology until end-September 2024. These rates will be calculated using the relevant CME Term SOFR rate plus the respective ISDA fixed spread adjustment. The FCA permits the use of 1-, 3- and 6-month ‘synthetic’ USD LIBOR settings in all legacy contracts except cleared derivatives. These ‘synthetic’ settings will not be permitted for use in any new contracts.
Publication of 3-month ‘synthetic’ GBP LIBOR continues to be produced on a non-representative basis for use in legacy contracts and is expected to cease permanently at end-March 2024.
The overnight and 12-month USD LIBOR settings ceased permanently after publication on 30 June 2023.
Publication of synthetic 1-, 3- and 6- month JPY settings ceased at end-2022; synthetic 1- and 6-month GBP LIBOR ceased on 31 March 2023.
All tenors of non-USD LIBOR rates (across GBP, JPY, EUR and CHF) and 1- and 2-week tenors of USD LIBOR ceased permanently with effect from 31 December 2021.
Please consult your own independent advisers and make your own assessment about the potential impact and / or ability to use any ‘synthetic’ rate.
Further information on interest rate reform and IBOR transition can be found on the websites of the Financial Conduct Authority (FCA), the Bank of England, the U.S. Commodity Futures and Trading Commission (CFTC), the Federal Reserve Bank of New York (FRBNY), the U.S. Alternative Reference Rates Committee (ARRC), the European Central Bank (ECB), the Financial Stability Board (FSB), the International Organization of Securities Commissions (IOSCO) and some of the working groups and industry bodies that are also considering these issues including the International Swaps and Derivatives Association (ISDA), the Loan Market Association (LMA) and the International Capital Markets Association (ICMA).
Please consult your own independent advisers and make your own assessment about the potential impact before you enter into any financial contracts with, purchase any financial instruments from, or purchase any financial instruments issued by, SCB including transactions which amend concluded transactions with SCB.
SCB makes no representation, warranty or recommendation, express or implied, as to the risks and/or consequences relating to a change in methodology or discontinuation of a Benchmark rate, or the appropriateness, suitability or expected economic value of any replacement, fallback or contingency option. In particular, SCB makes no representation that any replacement rate, fallback or contingency option will have the same methodology or economic consequences as an existing IBOR, a replacement rate derived from a legislative process or power or any other replacement rate widely adopted in the market.
SCB is not acting as a fiduciary or advisor to you, including in respect of any of the information set out in this document. None of the information set out in this document should be taken as constituting financial or investment advice or an invitation or inducement to enter into, amend, or alter, any financial contracts or investment activities. To the fullest extent permitted by applicable law, SCB accepts no responsibility or liability for any damage, expense or other loss you may suffer arising out of or in connection with any benchmarks (including in respect of any change or discontinuation of any benchmarks) or alternative reference rates and any information or statements provided in relation to them or any reliance you may place on such information or statements.
SCB makes no representation that any replacement rate that is selected by the parties in place of an IBOR in an existing transaction will be appropriate for related transactions to which you are also a party with SCB. In particular, no representation is given that a replacement rate in a derivative transaction will be economically linked or effective in respect of any other transaction.