FSB Welcomes Smooth Transition to Alternative Benchmark Rates
In a recently published statement, the Financial Stability Board (FSB) welcomed smooth transition away from LIBOR at the end of last year and announced plans to conduct a follow-up assessment on this transition in the second half of 2022.
Given the significant use of USD LIBOR globally, FSB emphasized that firms must have plans in place to ensure their preparedness for the cessation of the USD LIBOR panel. Firms should have already ceased new use of USD LIBOR and the continuation of some USD LIBOR settings through end-June 2023 is intended only to allow legacy contracts to mature. FSB encouraged firms to maintain momentum in active transition of legacy LIBOR contracts that reference synthetic GBP and JPY LIBOR settings. The UK Financial Conduct Authority (FCA) has been clear that synthetic LIBOR is a temporary bridging solution to allow more time for legacy contracts to transition to robust risk-free rates. Synthetic LIBOR rates cannot be guaranteed beyond end-2022. For JPY LIBOR, the FCA’s intention is that it will cease at end-2022. FCA has announced that, during 2022, it will seek views on retiring one-month and six-month synthetic sterling LIBOR at the end of 2022 and on when to retire the three-month sterling synthetic LIBOR. Nevertheless, FSB emphasized that active transition remains the best way for parties to retain control and certainty over their contractual terms.
FSB will continue to support engagement with emerging market and developing economies to maintain a smooth transition from LIBOR to risk-free rates across all global markets. FSB plans to conduct a follow-up assessment in the second half of 2022 to identify any remaining transition and supervisory challenges to support the LIBOR transition effort. The Official Sector Steering Group (OSSG) of FSB will continue to serve as a forum in 2022 and 2023 for cooperation among authorities that have leading roles in interest rate benchmark reforms and transition preparedness.
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Keywords: International, Banking, Insurance, Securities, LIBOR, Benchmark Reforms, LIBOR Transition, Risk-Free Rates, Interest Rate Benchmarks, FSB
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