The transition to the UK’s sterling Libor replacement, the Sterling Overnight Index Average, will take corporate treasury views into account. Treasury Today talks to Frances Hinden, Vice President Treasury Operations, Shell International, about her role as co-vice chair of the Bank of England’s working group on sterling risk-free reference rates.
The UK’s treasury community has been given a strong voice in the development of a new sterling risk-free reference rate.
The Bank of England (BoE) has named Frances Hinden, Vice President Treasury Operations, Shell International, as co-vice chair of the working group advising on the transition to the revised Sterling Overnight Index Average (Sonia). The benchmark is undergoing a set of reforms by the Bank of England, which will be implemented on 23rd April 2018. Libor will be phased out in 2021.
Treasurers have been involved before in working groups for FX and money-market reforms, but this appointment marks a first in such a high-profile position. The hope is with such senior level representation, the needs of corporates will be given greater priority. Previously, only banks and broker-dealers had been involved in the working group assessing the requirements of the new benchmark.
Having selected Sonia as a workable benchmark alternative, the BoE’s committee now has to “catalyse a broad-based transition” to the revised model over the remaining period of Libor’s existence, says Hinden.
Working group discussions on who needs to be involved in this process highlighted the fact that Libor is widely used as a corporate and asset management tool beyond the derivatives market: many corporates have a derivatives book, loan and other borrowing facilities, and vast numbers of commercial contracts and internal arrangements all based on Libor that will have to change.
“The transition was not going to happen without active involvement from the corporate side,” explains Hinden. She adds that the education and outreach element of this process will be vital, having herself only become aware of new benchmarking plans last year. “If I hadn’t thought about it, I’m sure many others in treasury have not.”
Rising up the agenda
Adding to the list of concerns may not be well-received; the UK-based treasurer’s to-do list is growing with Brexit, cybersecurity, regulations, ring-fencing et al piling on the demands. As such, Libor’s demise in 2021 may make it lower on the agenda. Hinden believes that its status should be elevated.
By appointing her to the role of co-vice chair, and by bringing in other corporate treasury professionals too, the corporate community has been granted a formal voice on this important matter and now has an opportunity to help shape the financial markets in a way that benefits more stakeholders.
The level of involvement Hinden will personally take in the Sonia project is naturally treasury-focused and as such will not generally be at the technical design level. However, she explains, “the education, outreach and the practicalities of implementation need input from people who are knowledgeable about how the corporate world works”.
A voice for all corporates
The aim now is for the diverse views of the treasury community to be aired. Invitation to comment has already been extended, via the ACT, to all interested corporates, large and small. Indeed, says Hinden, smaller companies need to be heard just as loudly as their multinational counterparts.
Complementary to the ACT and other industry bodies’ own communications on the topic, her neutral participation in the working group is by way of affording the smaller player the resources to be listened to at the highest level.
The communication plan currently being drawn up by the working group will seek to ensure as many voices as possible are heard, with the remit of facilitating the transition.
A personal view
Hinden’s initial reaction upon being asked to join the working group was to do what many would do and push for an easier route, looking for a new benchmark that represents Libor as closely as possible. “With the journey I have come on over the last few months, I am no longer sure that approach is right.”
She acknowledges that change management can be hard but now believes other treasurers may have to undertake that same journey of discovery in order that the best resolution be achieved. She notes that her status as treasurer, not banker, could be beneficial to the smoothing of the transition process from Libor to Sonia.
Indeed, she will likely be perceived by the corporate community – people who know and understand that she is in their position – as offering the more credible viewpoint. Despite her treasury roots, she is adamant that every view on the adoption of Sonia should be taken on merit regardless of which ‘side’ puts forward that view.
At a broader level, treasurers now have the opportunity to help shape regulatory change. With so many consultations on financial regulation ongoing, Hinden notes that too few corporates currently respond, “generally because they don’t have the time”. But, she adds, “if you’re not involved, you can’t complain when you don’t like the outcome”. This is a call to action.
If you are interested in getting involved with the working group, which has a number of focused sub-groups looking for suitable members, contact the Bank of England at RFR.Secretariat@bankofengland.co.uk Alternatively, if you prefer to work through existing industry bodies, both the ACT and the LMA are members of the working group and would be delighted to hear your views.