FSB Updates Global Transition Roadmap for LIBOR
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.
Related Links
- Press Release
- Global Transition Roadmap (PDF)
- Review of Overnight Risk-Free Rates and Term Rates (PDF)
- Statement on ISDA Spread Adjustments (PDF)
- Statement on Expectations from Entities (PDF)
- IOSCO Statement (PDF)
Keywords: International, Banking, Securities, LIBOR, Interest Rate Benchmarks, Legacy Contracts, Benchmark Reforms, LIBOR Transition, IOSCO, FSB
Previous Article
Central Bank of Ireland Sets Out Strategic Priorities for 2021Related Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.