APRA announced that Australian regulators (APRA, the Australian Securities and Investments Commission, and the Reserve Bank of Australia) strongly urge Australian institutions to adhere to the ISDA Protocol and Supplement. ISDA has announced that it will launch the 2020 IBOR Fallbacks Protocol and an associated Supplement to the 2006 ISDA Definitions on October 23, 2020. All financial and corporate institutions that use derivatives contracts referencing London Inter-bank Offered Rate (LIBOR) are strongly encouraged to review and adhere to the protocol by its effective date of January 25, 2021.
While the regulators welcome the progress of LIBOR transition in Australia to date, continued focus and effort are necessary, as highlighted in the APRA communication. Adherence is an important step toward the orderly transition of LIBOR-referenced derivatives contracts. It is critical to the mitigation of both individual entity risks and systemic risks associated with the discontinuation of LIBOR. The 2020 IBOR Fallbacks Protocol and associated Supplement to the 2006 ISDA Definitions are needed to implement robust fallback provisions for derivative contracts referencing key IBORs, including the London Interbank Offered Rate (LIBOR). The protocol and supplement are informed by extensive consultation with industry, including in Australia. FSB has also released a statement encouraging broad and timely adherence to the protocol. Industry-wide adoption of the fallbacks protocol is expected to significantly reduce the risks of contractual disputes, litigation, and frustration by creating a consistent approach to fallback rates when LIBOR comes to an end.
Keywords: International, Asia Pacific, Australia, Banking, Securities, LIBOR, IBOR, Derivatives, Benchmark Reforms, Benchmark Fallbacks, ISDA, APRA
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