Reference Rate Reform: Various Transition Approaches
An active transition means you transition your JIBAR linked contract to an alternative rate prior to the cessation date.
For a passive transition, the JIBAR contract will convert to an alternative rate on the JIBAR cessation date based on implemented fallback provisions.
National Treasury has prepared legislative amendments to the Financial Sector Regulation Act dealing with the cessation of JIBAR. The amendments are designed to passively transition any JIBAR linked transactions on the JIBAR cessation date to alternative reference rates using credit adjustment spreads. These amendments are expected to be incorporated into law in 2026. Following the process, SARB with provide guidance and regulations to aid the passive transition using the legislative amendments.
Understanding the Available Approaches
The transition from the Johannesburg Interbank Average Rate (JIBAR) to the South African Rand Overnight Index Average (ZARONIA) represents one of the most significant benchmark reforms in South Africa's financial markets. With JIBAR expected to cease at the end of 2026, financial institutions, corporates and market participants need to determine the most appropriate strategy for transitioning legacy JIBAR-linked contracts.
Although ZARONIA has been identified as the preferred successor benchmark for most financial products, the Market Practitioners Group (MPG) recognises that it may not be appropriate for every exposure. Depending on the underlying transaction, an alternative benchmark such as Prime or even a fixed rate may provide a better long-term solution. The key objective is therefore not simply transitioning to ZARONIA but ensuring that all legacy JIBAR exposures migrate to an appropriate alternative benchmark before JIBAR ceases.
Three Transition Approaches
Active Transition
Active transition involves amending existing contracts before JIBAR ceases so that they reference ZARONIA or another agreed benchmark. This amendment may take effect immediately or at a predetermined future date.
This approach is widely regarded as the preferred option because it removes uncertainty before cessation, allows counterparties to negotiate commercial terms, and significantly reduces the number of contracts requiring action once JIBAR ends. Once amended, these contracts are no longer considered legacy JIBAR exposures.
Passive Transition
Passive transition allows contracts to continue referencing JIBAR until a predefined trigger event—typically JIBAR's permanent cessation—activates contractual fallback provisions. These provisions specify how the replacement benchmark will be determined through a hardwired rate, a waterfall of alternatives or a designated determining person. Robust fallback language is essential to minimise legal uncertainty and disputes. Although referred to as 'passive', institutions still need significant client engagement, legal review and contract negotiations to implement these provisions.
Legislative Transition
While active transition remains the preferred approach, regulators recognise that not every legacy JIBAR-linked contract will be amended before JIBAR ceases. Many older contracts contain either no benchmark fallback provisions or fallbacks that were never designed for the permanent cessation of a reference rate. Without intervention, these contracts could create legal uncertainty, disputes between counterparties or even trigger contractual defaults.
To address this risk, National Treasury has developed amendments to the Financial Sector Regulation Act (FSR Act) that establish a statutory framework for benchmark replacement. These amendments are expected to be enacted during 2026 and will apply not only to JIBAR but also to the future cessation of regulated financial benchmarks.
Under the proposed legislation, the South African Reserve Bank (SARB) will be empowered to designate replacement benchmarks, determine the appropriate Credit Adjustment Spread (CAS), prescribe any technical, administrative or operational changes necessary for legacy contracts, and specify the date on which the replacement benchmark becomes legally effective.
The legislation also allows SARB to apply different replacement benchmarks or adjustment methodologies to different categories of contracts where appropriate, recognising that a single solution may not suit every financial product. In addition, statutory safe harbour provisions are intended to protect market participants from legal liability when contracts transition in accordance with the legislation, thereby providing legal certainty and reducing litigation risk.
Legislative transition is intended as a backstop mechanism rather than the primary transition strategy. Market participants are encouraged to actively transition legacy exposures wherever practical, as this provides greater commercial certainty, enables counterparties to negotiate suitable replacement rates and reduces operational complexity before JIBAR's cessation. Legislative transition therefore serves as the final safety net for contracts that cannot reasonably be amended before the cessation date.