FSB Encourages Adherence to ISDA IBOR Fallbacks Protocol
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.
Related Links
Keywords: International, Banking, Securities, LIBOR, IBOR, Derivatives, Fallback Protocol, ISDA, FSB
Previous Article
US Agencies Finalize Three Interim Final Rules Issued Amid PandemicRelated Articles
EBA Proposes Standards for IRRBB Reporting Under Basel Framework
The European Banking Authority (EBA) proposed implementing technical standards on the interest rate risk in the banking book (IRRBB) reporting requirements, with the comment period ending on May 02, 2023.
FED Issues Further Details on Pilot Climate Scenario Analysis Exercise
The U.S. Federal Reserve Board (FED) set out details of the pilot climate scenario analysis exercise to be conducted among the six largest U.S. bank holding companies.
US Agencies Issue Several Regulatory and Reporting Updates
The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.
ECB Issues Multiple Reports and Regulatory Updates for Banks
The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.
HKMA Keeps List of D-SIBs Unchanged, Makes Other Announcements
The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.
EU Issues FAQs on Taxonomy Regulation, Rules Under CRD, FICOD and SFDR
The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.
CBIRC Revises Measures on Corporate Governance Supervision
The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.
HKMA Publications Address Sustainability Issues in Financial Sector
The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.
EBA Updates Address Basel and NPL Requirements for Banks
The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.
ESMA Publishes 2022 ESEF XBRL Taxonomy and Conformance Suite
The General Board of the European Systemic Risk Board (ESRB), at its December meeting, issued an updated risk assessment via the quarterly risk dashboard and held discussions on key policy priorities to address the systemic risks in the European Union.
