South Africa: Zaronia Legislation Delay Prompts SARB Backup Plan

• The South African Reserve Bank and financial institutions are preparing backup plans for potential delays in legislation needed for the Zaronia transition.
• Zaronia is scheduled to replace Jibar by the end of this year, despite a legislative pause on the General Finance Laws Amendment Bill.
• Lawmakers halted the Bill's consideration after a Constitutional Court ruling invalidated the Public Procurement Act, one of the acts the Bill sought to amend, leading to a decision not to proceed with the Bill in its current form.
• The SARB insists that legislative delays will not alter the direction of the Jibar to Zaronia transition.
• Market participants are advised to continue adopting Zaronia and reduce Jibar-related exposures, with FTSE Russell administering Term Zaronia for future certainty.

Lawyers and compliance officers should advise clients that despite potential legislative delays concerning the General Finance Laws Amendment Bill, the transition from Jibar to Zaronia remains on track.

South African financial institutions, in collaboration with the South African Reserve Bank (SARB), are actively developing contingency strategies to manage potential delays in the legislative process crucial for the nation's shift to a new rand benchmark interest rate. The Market Practitioners Group (MPG), an entity comprising the central bank, the Financial Sector Conduct Authority, and various private-sector firms, is currently evaluating multiple options to ensure a seamless transition, even if the necessary legislation faces setbacks.

This proactive approach comes as the South African rand overnight index average, known as Zaronia, is slated to replace the Johannesburg interbank average rate (Jibar) by the close of the current year. The SARB has affirmed its commitment to transparent communication, stating that any adjustments to the transition timeline or related arrangements will be promptly conveyed to the market.

A key piece of legislation, the General Finance Laws Amendment Bill, which contains provisions designed to facilitate the migration of existing contracts from Jibar to Zaronia—especially those challenging to amend—saw its consideration by lawmakers halted last month. This halt occurred because the Constitutional Court's September 17 ruling invalidated the Public Procurement Act, one of the acts the Bill sought to amend, leading the Standing Committee on Finance to decide not to proceed with the Bill in its current form.

Despite this legislative pause, the SARB has unequivocally stated that Zaronia remains the preferred successor rate to Jibar. The central bank has emphasized that any delay in the legislative process will not alter the fundamental direction of this critical Jibar Zaronia transition in South Africa.

In light of the ongoing developments, the SARB has issued clear guidance to market participants, urging them to continue with the adoption of Zaronia and to actively reduce their exposures linked to Jibar. This directive underscores the central bank's position that the transition's inevitability remains unaffected by the legislative timeline, which is currently influenced by public participation requirements.

As part of the broader transition, the Market Practitioners Group Zaronia initiative has selected FTSE Russell to oversee the administration of Term Zaronia. This specific version of the benchmark is engineered to offer both borrowers and lenders enhanced certainty regarding future interest payments. FTSE Russell is already publishing a test version of Term Zaronia on its official website, enabling banks and other market participants to monitor its performance as the trading of products tied to this new benchmark continues to evolve.

Lawyers and compliance officers should advise clients that despite potential legislative delays concerning the General Finance Laws Amendment Bill, the transition from Jibar to Zaronia remains on track. Clients must continue to proactively adopt Zaronia and reduce Jibar-related exposures in contracts, as the South African Reserve Bank emphasizes the transition's inevitability, regardless of the legislative timeline impacted by public participation requirements.

Source: Original reporting via Bloomberg