FINMA Publishes Roadmap for LIBOR Replacement
FINMA published a timetable for the replacement of London Inter-bank Offered Rate (LIBOR). The FINMA timetable is based on the roadmap FSB had published in October 2020. FINMA recommends that the concerned supervised institutions should comply with the milestones it has set, to prepare themselves before LIBOR in various currencies ceases by the end of 2021. Thus, there remains only a short period of time until the proposed discontinuation of many LIBOR rates and their replacement by alternative reference rates such as SARON.
FINMA still considers the end of LIBOR as one of the principal operational risks facing its supervised institutions. Therefore, FINMA recommends that the supervised institutions should follow the following transition roadmap to be fully prepared for a discontinuation of LIBOR in CHF, EUR, GBP, JPY, and USD by the end of 2021:
- By January 25, 2021, the affected supervised institutions should have signed the ISDA 2020 IBOR Fallbacks Protocol.
- By January 31, 2021, there should be no new transactions based on CHF or EUR LIBOR that mature after the end of 2021 and do not contain robust fallback clauses across all product types. Where possible, the same objective should also be aimed at for new transactions based on GBP, JPY, or USD LIBOR. Also, the affected supervised institutions should be in a position to grant loans that are not based on CHF, EUR, GBP, JPY, or USD LIBOR.
- By March 31, 2021, based on a full evaluation of their inventory of existing CHF and EUR LIBOR contracts, the affected supervised institutions should have determined which contracts and what volume are potentially tough legacy, as they mature after 2021 and do not contain robust fallback clauses. They should have formulated detailed project plans with steps to be taken and progress monitoring to reduce this volume of tough legacy contracts to a minimum by the end of 2021.
- By June 30, 2021, the affected supervised institutions should have implemented the system and process changes necessary to enable transition to alternative reference rates and the application of fallback rates. By implementing these plans for the reduction of tough legacy and in particular by considering the progress of negotiations already conducted with the counterparties or other solutions that are already in place, it should be clear whether the objective of reducing the volume of tough legacy contracts in CHF and EUR LIBOR and the discontinued GBP and JPY LIBOR tenors to a minimum is achievable.
- By December 31, 2021, all relevant systems and processes should already be able to function without reliance on LIBOR. Also, all new transactions with variable interest in CHF, EUR, GBP, JPY, and USD should be based on alternative reference rates.
Related Links
- News Release (in German)
- FINMA Roadmap (PDF)
Keywords: Europe, Switzerland, Banking, LIBOR Transition, Alternative Reference Rates, Benchmark Reforms, Roadmap, FINMA
Previous Article
FASB Delays Implementation of Insurance Contracts StandardRelated Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.
