FED published guidance to assist examiners in assessing the supervised firms’ progress in preparing for LIBOR transition. Separate guidance has been published for institutions with less than USD 100 billion in total consolidated assets and for institutions with USD 100 billion or more in total consolidated assets. Institutions with less than USD 100 billion in total consolidated assets generally have less material and less complex LIBOR exposures. However, institutions with USD 100 billion or more in total consolidated assets generally have more significant and complex LIBOR exposures and should develop more detailed transition plans. Examiners should review the supervised firms’ planning for, and progress in, moving away from LIBOR during examinations and other supervisory activities in 2021.
The guidance outlines the factors that examiners should consider in assessing key aspects of transition efforts. A supervised firm with exposure to LIBOR should prepare for the LIBOR transition with respect to six key areas. The firm should:
- Have a LIBOR transition plan that includes a governance structure that clearly defines roles and responsibilities needed to execute the plan and a project roadmap with defined timelines and milestones
- Accurately measure financial exposures to LIBOR while exposure measurement should include any financial product that references LIBOR and may include, but is not limited to, investments, derivatives, and loans
- Identify all internal and vendor-provided systems and models that use or require LIBOR as an input and make necessary adjustments to provide smooth operation of those systems and models ahead of cessation of LIBOR
- Identify all contracts that reference LIBOR and refrain from entering into contracts without fallback language
- Communicate to the counterparties, clients, consumers, and internal stakeholders about the LIBOR transition and ensure compliance with requirements of the Truth in Lending Act and other applicable laws and regulations
- Provide the plan to applicable management, along with regular status updates to senior management
The guidance stipulates that examiners should discuss, with the firm, its plans for addressing LIBOR exposures and evaluate whether the firm has a plan in place to transition away from entering into new LIBOR-based financial contracts after December 31, 2021. Examiners should consider issuing supervisory findings and other supervisory actions if a firm is not ready to stop issuing LIBOR-based contracts by December 31, 2021.
- Guidance for Firms with Less Complex Exposures (PDF)
- Guidance for Firms with Complex Exposures (PDF)
Keywords: Americas, US, Banking, Securities, LIBOR, Guidance, Benchmark Reforms, FED
Previous ArticleBDF Updates AnaCredit Reporting Specifications in April 2021
The Hong Kong Monetary Authority (HKMA) revised the Supervisory Policy Manual module CG-5 that sets out guidelines on a sound remuneration system for authorized institutions.
The European Banking Authority (EBA) published the final guidelines on the monitoring of the threshold and other procedural aspects on the establishment of intermediate parent undertakings in European Union (EU), as laid down in the Capital Requirements Directive (CRD).
In a recent Market Notice, the Bank of England (BoE) confirmed that green gilts will have equivalent eligibility to existing gilts in its market operations.
The Financial Conduct Authority (FCA) published the policy statement PS21/9 on implementation of the Investment Firms Prudential Regime.
The European Banking Authority (EBA) proposed regulatory technical standards that set out criteria for identifying shadow banking entities for the purpose of reporting large exposures.
The Board of the International Organization of Securities Commissions (IOSCO) proposed a set of recommendations on the environmental, social, and governance (ESG) ratings and data providers.
The European Securities and Markets Authority (ESMA) published recommendations from the Working Group on Euro Risk-Free Rates (RFR) on the switch to risk-free rates in the interdealer market.
The European Central Bank (ECB) published a paper as well as an article in the July Macroprudential Bulletin, both of which offer insights on the assessment of the impact of Basel III finalization package on the euro area.
The International Swaps and Derivatives Association (ISDA) published a paper that explores the impact of the Fundamental Review of the Trading Book (FRTB) on the trading of carbon certificates.
The Prudential Regulation Authority (PRA) published the remuneration policy self-assessment templates and tables on strengthening accountability.