The evolution of STIBOR and Authorisation Process
Why is the SFBF evolving the benchmark?
The introduction of regulation EU 2016/1011 for financial benchmarks (BMR) requires all IBOR benchmarks to meet certain standards for the benefit of all users.
This regulation, introduced in the wake of the LIBOR scandal, imposes obligations for benchmark administrators to meet, within a particular timeframe. The level of obligations imposed is linked to the designation of the benchmark as to whether it is non-significant, significant or critical. In the case of STIBOR, it has been deemed critical, meaning that it has additional requirements to ensure its fitness for purpose.
BMR also introduces a requirement for all administrators of benchmarks to be regulated by a competent authority. In the case of STIBOR, the competent authority is the Swedish regulator, Finansinspektionen. The Finansinspektionen will assess the SFBF’s governance frameworks, processes, and methodologies to ensure that it will meet all aspects of the regulation. This process of assessing the benchmark is called the authorisation process. When complete, and successful, the SFBF will be listed on the ESMA Benchmarks Register as an authorised benchmark administrator.
SFBF has until 31 December 2021 to apply for authorisation and to demonstrate that it meets all the regulatory requirements.
What is SFBF doing to meet its authorisation deadline?
A comprehensive review of the STIBOR methodology was launched in July 2020, with a view to ensuring that STIBOR accurately reflects the current underlying economic reality, meets best practice, and that it fully conforms to BMR.
Throughout the review SFBF has been in active and progressive dialogue with contributing banks, the Bankers Association on behalf of its members, and with the Swedish Regulator, Finansinspektionen.
The review and analysis have shown a need for evolving the methodology and a potential clarification of the current definition of STIBOR. It is anticipated that these adjustments can be made to achieve a seamless transition without significant impact to either the value or the volatility of STIBOR.
A key requirement of BMR is for benchmarks to be anchored in actual transactions and for the reduction of expert judgement by contributing banks to the greatest extent possible. Presently, contributing banks provide estimates as to the level of STIBOR each day.
The SFBF has collected sample transactional data from contributing banks over an extended period to analyse how transactional data can be utilised in any new methodology.
What are the steps in the evolution process
There are a number of steps in the evolution process that need to take place, some of which have been completed or have already started: