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    FSB Updates Global Transition Roadmap for LIBOR

    June 02, 2021

    FSB welcomed the IOSCO statement on benchmark transition and published a set of documents to support the transition away from London Inter-bank Offered Rate (LIBOR) by the end of 2021. FSB published an updated global transition roadmap, a paper reviewing overnight risk-free rates and term rates, and a statement on the use of ISDA spread adjustments in cash products. Also published was a statement encouraging authorities to set globally consistent expectations that regulated entities should cease the new use of LIBOR in line with the relevant timelines for that currency. FSB announced that it plans to publish its next progress report on LIBOR transition in November 2021.

    The global transition roadmap published by FSB informs those with exposure to LIBOR benchmarks about some of the steps they should be taking now and over the remaining period to LIBOR cessation dates to successfully mitigate the risks associated with this transition. These are considered prudent steps to take to ensure an orderly transition by the end of 2021 and are intended to supplement existing timelines/milestones from industry working groups and regulators. By the end of 2021, firms should be prepared for all GBP, EUR, CHF, and JPY LIBOR settings and the one-week and two-month USD LIBOR settings to cease and should cease entering into new contracts that use USD LIBOR. By June 2023, firms should be prepared for all remaining USD LIBOR settings to cease. Meanwhile, by mid-2021, firms should:

    • Have determined which legacy contracts can be amended in advance of end-2021 and establish formalized plans to do so in cases where counterparties agree
    • Where LIBOR-linked exposure extends beyond end-2021, make contact with the other parties to discuss how existing contracts may be affected and what steps firms may need to take to prepare for use of alternative rates
    • Have implemented the necessary system and process changes to enable transition to robust alternative rates
    • Aim to use robust alternative reference rates to LIBOR in new contracts wherever possible
    • Take steps to execute formalized plans, where realistic, to convert legacy LIBOR-linked contracts to alternative reference rates in advance of end-2021

    In the paper on overnight risk-free rates and term rates, FSB cautions market participants against waiting for the development of additional tools, in particular forward-looking term risk-free rates. The statement on the use of ISDA spread adjustments in cash products supports transition particularly in loan markets, which remains an area of concern with much new lending still linked to LIBOR. Regarding the statement encouraging authorities to set globally consistent expectations, in light of the significant use of USD LIBOR globally, FSB believes it is important to reinforce the message and timeline from US Supervisors on a global scale. Accordingly, FSB encourages all global market participants to discontinue new use of USD LIBOR-linked contracts as soon as practicable and no later than end-2021, in light of the safety and soundness risks associated with continued use. FSB members will be reiterating these expectations to regulated firms in their own jurisdictions as appropriate to support this objective and will continue to provide support for action taken by home authorities in all LIBOR currencies to promote a smooth transition.

     

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    Keywords: International, Banking, Securities, LIBOR, Interest Rate Benchmarks, Legacy Contracts, Benchmark Reforms, LIBOR Transition, IOSCO, FSB

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