In depth

South Africa's financial sector is standing on the brink of one of its most significant transformations in decades: the replacement of the long-standing Johannesburg Interbank Average Rate (JIBAR) benchmark with the new South African Rand Overnight Index Average (ZARONIA) rate. Far more than a technical recalibration, this transition marks a wholesale legal, regulatory and operational reset for the industry. As global standards demand greater transparency and reliability, ZARONIA's arrival ushers in a future where South African finance is more robust, more transparent and firmly aligned with international best practice.

For decades, JIBAR served as the benchmark rate for pricing loans, derivatives and other financial instruments. However, its reliance on indicative quotes rather than actual transactions raised concerns about its reliability and transparency. As global markets moved away from similar benchmarks like LIBOR, South Africa followed suit. Tee-up ZARONIA, a transaction-based, backward-looking rate that reflects real overnight lending activity between banks. 

The shift to ZARONIA brings South Africa in line with international best practices and strengthens the integrity of its financial benchmarks. But the implications go far beyond market mechanics.

Rate switch mechanics

The transition requires a market-wide re-examination of thousands of financial contracts. The Loan Market Association (LMA) Exposure Draft and the South African Reserve Bank's (SARB) Precedent Amendment Agreement provide the legal scaffolding for this transition. The rate switch mechanism is structured to activate automatically upon pre-defined trigger events, such as the SARB announcing the cessation or unreliability of JIBAR.

The ZARONIA Rate Switch Amendment Agreement, developed for the syndicated loan market, adopts a non-cumulative compounded in arrears methodology with a five-business-day lookback (without observation shift). This aligns with the LMA's Exposure Draft and is designed to ensure consistency across South African law-governed syndicated loan agreements. The SARB has indicated that the final cessation of JIBAR is expected by 31 December 2026, with the transition already underway in the derivatives market, under the "ZARONIA First" initiative.

Impact on collective investment schemes and money market portfolios

The Financial Sector Conduct Authority's (FSCA) Communication 10 of 2025 (CIS) provides a crucial exemption for money market portfolios. It lifts the requirement under Board Notice 90 that interest rates must be known in advance. This change allows these portfolios to invest in ZARONIA-linked instruments, even though ZARONIA is calculated in arrears. This exemption removes a major barrier. Without it, money market funds would have been excluded from a growing segment of the market. Now, they can participate in the benchmark reform without breaching regulatory conditions.

For example, a fund can now purchase a floating rate note linked to compounded ZARONIA. Previously, this would have been prohibited because the rate was not known at the time of purchase. Similarly, overnight placements that rely on the next day's ZARONIA rate are now permitted. 

Bond market considerations

The bond market poses distinct challenges on the transition from JIBAR to ZARONIA, primarily due to the absence of standardised fallback language in many existing bond agreements. Unlike syndicated loans or derivatives, which often include detailed rate-switch clauses, bonds, especially those issued before benchmark reform discussions, frequently lack mechanisms to address the cessation of a reference rate. This creates legal uncertainty and potential valuation disputes, particularly for long-dated instruments that extend beyond the 2026 JIBAR cessation timeline.

To address this, bond market participants have adopted a proactive and collaborative approach. For legacy bonds, solutions include consent solicitations to amend terms, the use of synthetic fallback rates, or trustee-led amendments where permitted. These methods balance investor protection with issuer feasibility. Internationally, jurisdictions like the United Kingdom and United States of America have relied on legislative solutions (e.g., the US LIBOR Act) and regulatory guidance to implement synthetic rates or safe harbour provisions. While South Africa has not yet adopted a legislative route, there have been progressive steps taken by bond market participants which issued the first ZARONIA-linked bonds. Despite the lack of legislative guidelines, various market participants have spearheaded adoption efforts and expressed their readiness to process and list ZARONIA-linked bonds.  

The move from JIBAR to ZARONIA signals a seismic shift in South Africa's financial landscape, bringing local practice in line with international benchmarks and boosting the integrity of market rates. This overhaul impacts everything from loans and derivatives to bonds and collective investment schemes, demanding robust legal, operational and strategic responses. Key elements such as fallback clauses, credit adjustment spreads and targeted regulatory exemptions like those granted to money market funds are central to ensuring a smooth transition.

Market participants must act with urgency and foresight. Institutions that embrace these changes early will not only mitigate risk but also position themselves as leaders in a more transparent, resilient, and globally integrated financial environment.

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Nhloso Zulu, Trainee Solicitor, has contributed to this legal update.