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    FINMA Issues Notification on LIBOR Replacement in Derivatives Sector

    October 16, 2020

    FINMA published notification 08/2020 on LIBOR replacement in the derivatives sector. FINMA recommends that the supervised parties affected by the LIBOR replacement sign the new fallback protocol of the ISDA and the expected equivalent changes to the Swiss framework agreements for OTC derivatives as early as possible.

    The cessation of LIBOR is getting closer. In terms of volume, the largest proportion of the contracts still linked to LIBOR are over-the-counter derivatives (OTC derivatives). In a survey of Swiss institutions in June 2020, FINMA found that OTC derivatives with a volume of over CHF 11.5 trillion are contractually bound to LIBOR beyond 2021. FINMA sees application of the new fallback documents to OTC derivatives, by as many contracting parties as possible, as essential so that the high risks associated with the cessation of LIBOR can be minimized. ISDA had announced the expected publication of its IBOR fallback documents for such OTC derivatives by October 23, 2020. After the ISDA fallback documents come into force in January 2021, no new LIBOR OTC derivative contracts should be entered into without robust fallback clauses.

     

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    Keywords: Europe, Switzerland, Banking, Insurance, Securities, Benchmark Fallbacks, LIBOR, Derivatives, Benchmark Reforms, Fallback Protocol, ISDA, FINMA

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