Justin Ridl, MD and Head of Financial Services at Cognia Law
In the first of a series of three articles, we provide essential insights on preparing your institution for the upcoming JIBAR (Johannesburg Interbank Average Rate) regulatory reform transition.
Drawing from our extensive experience with global regulatory changes – such as Libor, MiFID II, Brexit, GDPR, EBA, and Margin Reform – Cognia Law brings you practical advice on navigating this complex process.
Current state of JIBAR transition
South African banks are beginning to formulate their JIBAR transition plans, with significant challenges anticipated over the next year. High contract remediation volumes and ambitious deadlines set by the South African Reserve Bank (SARB) have been established.
Most business units are currently developing strategic roadmaps for managing their JIBAR-linked exposures. However, it was recently highlighted at the Market Practitioners Group (MPG) Reference Rate Reform Legal Workstream Meeting meeting held on the 24th of May 2024 – that contract-mapping for the repapering and renegotiation of existing JIBAR-linked contracts is one of the key concerns among bank in-house legal stakeholders as the cessation deadline approaches.
Timeline and requirements
According to the transition plan, the MPG promotes the commencement of “ active transition ” of existing contracts sooner rather than later, but according to the timeline depicted below, by no later than December 2025. This involves proactively transitioning legacy JIBAR contracts to reference ZARONIA (South African Overnight Index Average) before JIBAR ceases. This process should begin now with discovery, contract-mapping, document clustering, and AI-assisted data extraction. The ” Dear CEO ” letters requesting the articulation of transition plans are planned to be sent to the market before the end of Q3 2024.
The SARB’s expected timeframe is outlined below. *1
Lessons from the LIBOR transition
The recent LIBOR transition in the international market underscores the need for cross-functional input and coordination at the outset. South African banks and financial services companies must accelerate their programmes to evaluate their JIBAR transition projects – taking inventory of affected contracts, and developing budgets and plans to avoid inefficiencies, budget overruns, or missed deadlines. Given the inevitable nature of JIBAR repapering, this should take precedence over less urgent in-house legal priorities. Relying solely on internal legal resources will likely be insufficient for this large-scale task.
Legal service provider lawyers, paralegals, project managers, and data analysts must be deployed from the outset to undertake upfront contract-mapping and aid transition planning.
Optimal approach: phased implementation
A successful transition programme requires an agile approach, broken into three phases:
Strategic setup and early action
Starting Phase 1 immediately is crucial. The SARB’s timeline necessitates prompt action, and early project set-up support will help to alleviate the complexities of the transition. This should be aided by a series of instructive workshops to ensure an optimal approach, along with a triage system to remove irrelevant or duplicate documents – grouping them so that families of contracts and amendment agreements are reviewed holistically.
With over a decade of experience providing comprehensive regulatory reform solutions, we’ve learned the critical importance of initiating discovery, contract-mapping, and AI-assisted data extraction early on. Failure to do so can significantly hinder your ability to accurately scope the project, set budgetary requirements, and establish realistic timelines.
Overview of our modular methodology
Our methodology, refined over ten years, integrates technology to reduce costs and enhance project and service delivery for our clients. Visit our regulatory reform platform Reg Reform Pro to learn more, and view our methodology below.
Our methodology is underpinned by a deep understanding of the challenges clients face when undertaking a repapering exercise. It is tailored to meet the specific requirements of each repapering project. Especially the need to align with client timelines and the affected agreement volumes.
Watch this space for the next two JIBAR articles covering Phase 2 (Impact analysis and repapering preparation) and Phase 3 (Negotiation, repapering and execution).
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