FSB welcomed the announcement by ISDA of the forthcoming launch of its interbank lending rate (IBOR) Fallbacks Protocol and IBOR Fallbacks Supplement for IBOR-linked derivative contracts. FSB strongly encourages widespread and early adherence to the Protocol by all affected financial and non-financial firms to avoid disruptions in covered derivatives contracts if the IBOR they currently reference is discontinued or, in the case of LIBOR, becomes non-representative. This Protocol will be a major driver of transition for derivatives in all LIBOR currencies and a critical step in the benchmark transition. In a separate announcement, ISDA has announced that it will launch the IBOR Fallbacks Supplement to the 2006 ISDA Definitions and the ISDA 2020 IBOR Fallbacks Protocol on October 23, 2020, with the Protocol taking effect on January 25, 2021.
On January 25, 2021, all new derivatives contracts that incorporate the 2006 ISDA Definitions and reference one of the covered IBORs will contain the new fallbacks. Derivatives contracts existing as of this date will incorporate the new fallbacks if both counterparties have adhered to the protocol or otherwise have bilaterally agreed to include the new fallbacks in their contracts. The protocol will remain open for adherence after this effective date.
London Inter-bank Offered Rate (LIBOR) transition is a G20 priority and remains an essential task that will strengthen the global financial system. The FSB’s Official Sector Steering Group engaged regularly with ISDA during the significant program of work that it has undertaken since July 2016 to strengthen the robustness of derivatives markets as part of global benchmark reforms. The fallbacks and related triggers that will be implemented via the Protocol and Supplement are based on a series of open consultations by ISDA that have resulted in broad market consensus. Widespread adoption of the Protocol will be necessary to ensure that it is effective in mitigating risks at a system-wide level. Market participants that choose not to do so for some or all of their relevant trades will need to take robust alternative steps, such as closing out these positions or appropriate bilateral amendments, to avoid the risk of disruption.
Keywords: International, Banking, Securities, LIBOR, IBOR, Derivatives, Fallback Protocol, ISDA, FSB
Previous ArticleUS Agencies Finalize Three Interim Final Rules Issued Amid Pandemic
ESAs published the final draft implementing technical standards on reporting of intra-group transactions and risk concentration of financial conglomerates subject to the supplementary supervision in EU.
EBA published the annual report on asset encumbrance of banks in EU.
FED updated the reporting form and instructions for the FR Y-9C report on consolidated financial statements for holding companies.
EBA issued a consultation paper on the guidelines on monitoring of the threshold and other procedural aspects of the establishment of intermediate EU parent undertakings, or IPUs, as laid down in the Capital Requirements Directive.
EC published Regulation 2021/25 that addresses amendments related to the financial reporting consequences of replacement of the existing interest rate benchmarks with alternative reference rates.
BIS published a bulletin, or a note, that examines the cyber threat landscape in the context of the pandemic and discusses policies to reduce risks to financial stability.
HM Treasury, also known as HMT, has updated the table containing the list of the equivalence decisions that came into effect in UK at the end of the transition period of its withdrawal from EU.
EBA published an erratum for technical package on phase 1 of the reporting framework 3.0.
APRA updated a frequently asked question (FAQ), for authorized deposit-taking institutions, on the measurement of credit risk weighted assets.
ECB published a letter from Andrea Enria, the Chair of the Supervisory Board of ECB, answering questions raised by the President of the Bundestag (the German federal parliament) on how ECB assesses the financial stability of the euro area in the context of the significant level of nonperforming loans.