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
The Central Bank of the Philippines (BSP) issued communications covering developments related to online lending platforms, open finance framework and roadmap, and on the expected regulations in the area sustainable finance.
The Board of Governors of the Federal Reserve System (FED) published the final rule that amends Regulation I to reduce the quarterly reporting burden for member banks by automating the application process for adjusting their subscriptions to the Federal Reserve Bank capital stock, except in the context of mergers.
The European Banking Authority (EBA) published its assessment of risks through the quarterly Risk Dashboard and the results of the Autumn edition of the Risk Assessment Questionnaire (RAQ).
The Malta Financial Services Authority (MFSA) updated the guidelines on supervisory reporting requirements under the reporting framework 3.0.
The Hong Kong Monetary Authority (HKMA) published a circular, along with the reporting form and instructions, for self-assessment, by authorized institutions, of compliance with the Code of Banking Practice 2021.
The Financial Conduct Authority (FCA) decided to register European DataWarehouse Ltd and SecRep Limited as securitization repositories under the UK Securitization Regulation, with effect from January 17, 2022.
The European Commission (EC) published the Delegated Regulation 2022/25, which supplements the Investment Firms Regulation (IFR or Regulation 2019/2033) with respect to the regulatory technical standards specifying the methods for measuring the K-factors referred to in Article 15 of the IFR.
The Bank of International Settlements (BIS) published a paper that assesses the ways in which platform-based business models can affect financial inclusion, competition, financial stability and consumer protection.
The Central Bank of Egypt (CBE) published a circular with instructions on emergency liquidity assistance to banks that are unable to meet their liquidity requirements.
The European Supervisory Authorities (ESAs) published the list of identified financial conglomerates for 2021.