Featured Product

    FSB Reports on LIBOR Transition, Urges Entities to Take Action

    July 06, 2021

    FSB published a progress report to the G20 on the transition away from London Inter-bank Offered Rate (LIBOR). The report discusses recent developments, supervisory issues, and sets out the next steps. Given the limited time available until the end of 2021, FSB strongly urges market participants to act now to complete the steps set out in its global transition roadmap; global and national financial regulators should maintain the momentum of transition and continue to monitor the progress closely. The progress report to the G20 sets the scene on issues and risks associated with LIBOR transition and presents observations and key themes from the FSB Official Sector Steering Group (OSSG) on the remaining aspects of benchmark transition.

    The report also presents findings from FSB’s follow-up questionnaire on supervisory issues related to LIBOR transition. Since some of the most widely used USD LIBOR settings will only cease after the end of June 2023, the focus of the next steps set out by FSB on further monitoring will be the remaining issues associated with LIBOR transition after the end of 2021. This will include monitoring new issuance of USD LIBOR contracts post 2021 as well as the size and resolution of tough legacy contracts referencing USD LIBOR that are due to mature after June 2023. FSB will review these issues in mid-2022 and assess the implications for supervisory and regulatory cooperation. Overall, the progress report sets out the following key messages:

    • With cessation timelines now confirmed, there should be no remaining doubts as to the urgency of the need to transition away from LIBOR by the end of 2021. It is emphasized that the continuation of some key USD LIBOR tenors through to June 30, 2023 is intended only to allow legacy contracts to mature, as opposed to supporting new USD LIBOR activity.
    • Supervisory authorities should step up their efforts for active and adequate communication to increase awareness of the scope and urgency of relevant Interbank offered rate (IBOR) transitions for all clients and other market participants. Financial institutions and non-financial  institutions need to accelerate adoption of risk free rates in new contracts, acceptance of newly developed products, as well as active conversion of legacy LIBOR-referencing contracts to directly reference risk free rates and/or insertion of robust fallback language. Emerging markets and developing economies lagging engagement with financial institutions should step up efforts to increase their outreach to promote awareness and actions.
    • Market participants must not wait for development of additional tools to transition away from LIBOR and need to be transitioning to reference rates that are compatible with financial stability and do not reintroduce the vulnerabilities seen with LIBOR to support sustained financial stability. Given the many examples of successful use of overnight risk-free rates across a wide range of cash products, in many cases, a risk-free rate derived term rate will not be needed for new cash products. FSB has encouraged market participants to seek to use overnight risk-free rates directly in these products.
    • On the international front, collaboration and coordination remain crucial in expediting the transition progress. FSB encourages authorities to set globally consistent expectations and milestones that firms will rapidly cease the new use of LIBOR regardless of where those trades are booked or in which currency they are denominated. As set out in the FSB statement on smooth and timely transition away from LIBOR, FSB members will be reiterating the expectation that regulated firms within their remit cease new use of LIBOR as soon as practicable, with reference to relevant milestones in each currency, and no later than the end of 2021.
    • With only a few months remaining until the end of 2021, jurisdictions should ensure the ”identification” recommendations from FSB’s July 2020 report are now complete and that work is well underway in adopting the recommendation listed under “facilitation” and “coordination.” The follow-up questionnaire findings show that recommendations grouped under the area of ”identification”, which are foundational actions necessary to lay the ground for further work on ”facilitation” and ”coordination” have seen the greatest level of completion across all jurisdictions, with work on ”facilitation” and “coordination” lagging behind. Also, the progress of reviews of existing fallback language in legacy contracts varies significantly across jurisdictions. In the absence of protocol mechanisms similar to the ISDA Fallback Protocol, there continues to be less progress in transitioning legacy cash products. As indicated in a June 2021 statement, FSB supports the potential benefits of using the ISDA spread adjustments for cash products that are to fall back or move from an IBOR to overnight risk-free rates, or to risk-free-rate-based term rates.

     

    Related Links

    Keywords: International, Banking, Securities, LIBOR, Risk Free Rates, Global Transition Roadmap, Legacy Contracts, Fallback Protocol, Benchmark Reforms, ISDA, FSB

    Related Articles
    News

    OSFI Discusses Benchmark Rate Transition, Sets Out Work Priorities

    The Office of the Superintendent of Financial Institutions (OSFI) published the strategic plan for 2022-2025 and the departmental plan for 2022-23.

    May 17, 2022 WebPage Regulatory News
    News

    EBA Proposes Standards to Support Secondary NPL Markets

    The European Banking Authority (EBA) is consulting, until August 31, 2022, on the draft implementing technical standards specifying requirements for the information that sellers of non-performing loans (NPLs) shall provide to prospective buyers.

    May 17, 2022 WebPage Regulatory News
    News

    EU Confirms Agreement on Rules on Cybersecurity and Banking Resolution

    The European Council and the Parliament reached an agreement on the revised Directive on security of network and information systems (NIS2 Directive).

    May 13, 2022 WebPage Regulatory News
    News

    EBA Issues Standards for Crowdfunding Service Providers Under ECSPR

    The European Banking Authority (EBA) published the final draft regulatory technical standards specifying information that crowdfunding service providers shall provide to investors on the calculation of credit scores and prices of crowdfunding offers.

    May 13, 2022 WebPage Regulatory News
    News

    EU to Amend Credit Risk Adjustment Rules; ESAs Submit Queries on SFDR

    The European Council published a draft Commission Delegated Regulation to amend the regulatory technical standards on specification of the calculation of specific and general credit risk adjustments.

    May 13, 2022 WebPage Regulatory News
    News

    EU Confirms Agreement on Rules on Cybersecurity and Banking Resolution

    The European Securities and Markets Authority (ESMA) published a paper that examines the systemic risk posed by increasing use of cloud services, along with the potential policy options to mitigate this risk.

    May 12, 2022 WebPage Regulatory News
    News

    MAS Amends Notice 635 and Issues Second Proposal on Green Taxonomy

    The Monetary Authority of Singapore (MAS) published amendments to Notice 635, which sets out requirements that a bank in Singapore has to comply with when granting an unsecured non-card credit facility to individuals.

    May 12, 2022 WebPage Regulatory News
    News

    EC Consults on PSD2 and Open Finance; EU Reaches Agreement on DORA

    The European Commission (EC) published a public consultation on the review of revised payment services directive (PSD2) and open finance.

    May 11, 2022 WebPage Regulatory News
    News

    EC Mandates ESAs to Propose Amendments to SFDR Technical Standards

    The European Commission (EC) has issued two letters mandating the European Supervisory Authorities (ESAs) to jointly propose amendments to the regulatory technical standards under Sustainable Finance Disclosure Regulation or SFDR.

    May 11, 2022 WebPage Regulatory News
    News

    EBA Examines Supervisory Practices, Issues Deposits Reporting Template

    The European Banking Authority (EBA) published its annual report on convergence of supervisory practices for 2021. Additionally, following a request from the European Commission (EC),

    May 11, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8196