In September 2022, the Steering Committee of the National Working Group for benchmark reform in Poland (NWG Steering Committee) accepted the Roadmap for replacing WIBOR and WIBID benchmarks with a new benchmark.
The Roadmap schedule was prepared so as to ensure compliance of the benchmark replacement process with the Benchmarks Regulation (BMR), and the purpose of the process was to make sure that the transition to the new type of benchmark would be safe for financial market participants and smooth for all participants in business processes. The activities carried out by benchmark users so far have been in line with the schedule and confirm the users’ commitment to the transformation, for example with first offers being marketed and referring to the new type of risk-free rate (RFR).
The major challenge in the finalisation of the reform is an appropriate and economically and legally safe conversion of the legacy portfolio of contracts and financial instruments that use the WIBOR benchmark. In the course of its activities, the NWG identified a series of challenges that were specific to the financial sector in Poland and resulted from the scale and structure of the contracts/instruments that used WIBOR and generated risks to the safe conversion. The complexity of the benchmark reform in the financial sector in Poland has also increased due to increased volatility of interest rates. The NWG has recently carefully reviewed those aspects, including through a quantitative analysis of stressed conditions. The analysis took into account scenarios of the economic conditions based on historical data that might cause an unintended increase in the costs of the benchmark replacement process for all financial market participants. A key point in favour of a change in the reform schedule was a potential accumulation of events over a short period, which might cause negative financial consequences for the Polish financial market as a whole. The conclusions from the analyses and discussions forced us to review the current Roadmap and set new dates.
In our view, a solution that could mitigate the identified risks, including systemic effects, is to systematically and permanently introduce new RFR benchmarks in contracts and financial instruments, or to limit the application of floating interest rates in the contracts. This will allow a gradual reduction of exposure to the WIBOR benchmark. With a shift of the time of full conversion, the existing portfolio of contracts and financial instruments, including bonds issued by the State Treasury, will be gradually reduced, mitigating the risks and costs arising from the replacement of benchmarks in the case of, for example, material changes in the economic environment at the time of cessation of the WIBOR critical benchmark.
Therefore, the NWG Steering Committee has decided to change the maximum time limits for the implementation of the Roadmap by encouraging a bottom-up shift from WIBOR toward new contracts and financial instruments that use fixed interest rate or new RFR benchmarks. The NWG Steering Committee postponed the deadline for conversion until the end of 2027. The reform’s overall strategy and the activities planned in the Roadmap remain unchanged. The NWG Steering Committee will be monitoring the execution of the key elements of the Roadmap to ensure optimum conditions for the development of the financial market in Poland.
The key elements that guarantee the success of the reform include: creation of conditions for the development of a liquid market of spot instruments and derivatives using a chosen RFR benchmark for Polish zloty (PLN), operational and technical preparedness of all financial market participants (issuers, investors, market infrastructure providers) for the replacement of WIBOR and WIBID benchmarks with RFR benchmarks, and implementation of the necessary amendments to the Polish and EU legislation. It’s also important to raise awareness of the reform and its consequences among financial market participants, particularly consumers, and to create conditions for the development of the financial market that reduce the exposure of certain contracts and financial instruments to interest rate risk.
The postponement of the completion of the reform will allow appropriate time for creating conditions for promoting the application of RFR benchmarks in contracts and financial instruments, considering operational, technical, communication and legal aspects, which is of fundamental importance to the development and resilience of the financial market in Poland.