FSB Report Outlines Progress on Interest Rate Benchmark Reform
FSB published a progress report on the implementation of reforms to major interest rate benchmarks, including the London Inter-bank Offered Rate (LIBOR) benchmark. The appendices to the report include a table that maps major interest rate benchmarks to alternative reference rates and a roadmap that sets out the timetable of actions for financial and non-financial sector firms to take to ensure a smooth LIBOR transition by the end of 2021. The report presents progress with respect to LIBOR, EURIBOR, and TIBOR currency areas. Other covered currency area jurisdictions include Australia, Brazil, Canada, Hong Kong, Indonesia, Mexico, Saudi Arabia, Singapore, South Africa, and Turkey.
The report notes that much more needs to be done by both the private and public sector over the next year to increase awareness of, and preparedness for, LIBOR transition, and ensure proactive transition in all cases, by adhering to the best practices and standards appropriate for individual products. To support and facilitate transition, FSB has developed a global transition roadmap setting out high-level steps to be taken ahead of the end of 2021. While recognizing that the transition timelines in different jurisdictions respond to the needs and specific institutional and legal conditions, this roadmap is intended to inform firms of some of the steps they should be taking now and over the remaining period to the end of 2021 to successfully mitigate risks to global financial stability. These are considered prudent steps to take to ensure an orderly transition by end-2021 and are intended to supplement the existing timelines or milestones from industry working groups and regulators. The roadmap outlines the progress firms should have made till now and specifies that by mid-2021:
- On the basis of a full assessment of their stock of legacy contracts, firms should have determined which contracts can be amended in advance of the end of 2021 and establish formalized plans to do so in cases where counterparties agree.
- Where LIBOR-linked exposure extends beyond the end of 2021, firms should 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.
- Firms should have implemented the necessary system and process changes to enable transition to robust alternative rates.
- Firms should aim to use robust alternative reference rates to LIBOR in new contracts wherever possible.
- Firms should take steps to execute formalized plans, where realistic, to convert legacy LIBOR-linked contracts to alternative reference rates in advance of the end of 2021.
Consistent with the above and emphasizing the importance of action on this timetable ICE Benchmark Administration (IBA), which is the administrator of LIBOR, announced on November 18, 2020 that it will consult on its intention that the euro, sterling, Swiss franc, and yen LIBOR panels would cease at the end of 2021. Announcements in relation to the USD LIBOR are expected to follow. In its role as regulator of IBA, the UK FCA has also set out its potential approach for use of new powers under proposed UK legislation to ensure an orderly wind-down of LIBOR and published consultations on its proposed policies for using them. FSB Official Sector Steering Group (OSSG) Co-Chairs Andrew Bailey and John C. Williams said that “The message that all market participants should take from this report and this week’s announcements from the IBA and FCA is that we need to be prepared for the end of LIBOR. Everyone needs to be ready."
Related Links
Keywords: International, Banking, Securities, Interest Rate Benchmarks, Legacy Contracts, Risk Free Rates, IBA, LIBOR, Benchmark Reforms, Derivatives, FSB
Previous Article
PRA Updates Q&A on Branch Return FormRelated Articles
BOE Sets Out Its Thinking on Regulatory Capital and Climate Risks
The Bank of England (BOE) published a working paper that aims to understand the climate-related disclosures of UK financial institutions.
OSFI Finalizes on Climate Risk Guideline, Issues Other Updates
The Office of the Superintendent of Financial Institutions (OSFI) is seeking comments, until May 31, 2023, on the draft guideline on culture and behavior risk, with final guideline expected by the end of 2023.
BIS Paper Examines Impact of Greenhouse Gas Emissions on Lending
BIS issued a paper that investigates the effect of the greenhouse gas, or GHG, emissions of firms on bank loans using bank–firm matched data of Japanese listed firms from 2006 to 2018.
HMT Mulls Alignment of Ring-Fencing and Resolution Regimes for Banks
The HM Treasury (HMT) is seeking evidence, until May 07, 2023, on practicalities of aligning the ring-fencing and the banking resolution regimes for banks.
BCBS Report Examines Impact of Basel III Framework for Banks
The Basel Committee on Banking Supervision (BCBS) published results of the Basel III monitoring exercise based on the June 30, 2022 data.
PRA Consults on Prudential Rules for "Simpler-Regime" Firms
Among the recent regulatory updates from UK authorities, a key development is the first-phase consultation, from the Prudential Regulation Authority (PRA), on simplifications to the prudential framework that would apply to the simpler-regime firms.
DNB Publishes Multiple Reporting Updates for Banks
DNB, the central bank of Netherlands, updated the list of additional reporting requests and published additional data quality checks and XBRL-Formula linkbase documents for the first quarter of 2023.
NBB Sets Out Climate Risk Expectations, Issues Reporting Updates
The National Bank of Belgium (NBB) published a communication on climate-related and environmental risks, issued an update on XBRL reporting
EBA Updates Address Securitization Standards and DGS Guidelines
The European Banking Authority (EBA) published the final draft of the regulatory technical standards that set out conditions for assessment of homogeneity of the underlying exposures in simple, transparent, and standardized (STS) securitizations.
FSB Publishes Letter to G20, Sets Out Work Priorities for 2023
The Financial Stability Board (FSB) published a letter intended for the G20 Finance Ministers and Central Bank Governors, highlighting the work that FSB will take forward under the Indian G20 Presidency in 2023
