On 9 June 2022, the Bank of England (BoE) issued a consultation paper setting out proposals to modify the contract types which are subject to the clearing obligation in the onshored version of Commission Delegated Regulation (EU) 2015/2205 (BTS 2015/2205)
The BoE now considers it appropriate to consult on changes to the clearing obligation in relation to USD interest rate swaps. It is proposing to:
- Add Overnight Index Swaps (OIS) contracts that reference the Secured Overnight Financing Rate (SOFR), to come into force on 31 October 2022.
- Subsequently remove contracts that reference USD Libor, to come into force around the same time as a number of CCPs contractually convert these contracts and remove them from their list of contracts eligible for clearing.
The BoE anticipates that the proposals will not have material costs for firms. This is on the basis that the amendments to the scope of the clearing obligation are a consequence of interest rate benchmark reform and the level of over-the-counter derivatives activity covered by the clearing obligation should remain broadly the same once the transition has been completed. The BoE does not expect there to be a significant change to the population of firms that are required to clear USD Libor contracts under the current clearing obligation relative to those that will be required to clear SOFR OIS contracts once it has been added.
The deadline for comments on the consultation paper is 21 July 2022.
Following consideration of any responses, the BoE will submit the proposed technical standards to HM Treasury for approval. Subject to approval by HM Treasury, the BoE intends to make and publish the amendments to BTS 2015/2205 in September 2022.