Featured Product

    FINMA Issues Supervisory Guidance on LIBOR Transition

    September 16, 2021

    The Swiss Financial Market Supervisory Authority (FINMA) issued a supervisory guidance (03/2021) on replacement of the reference interest rate LIBOR. FINMA points out a number of tried and tested approaches to successfully deal with the LIBOR replacement and reinforces that market participants should continue to give the necessary preparations the highest priority. FINMA considers the banks to be largely on track with the roadmap for 2021, but sees the need to catch up in the area of ​​syndicated loans, wherein at least two credit institutions jointly grant a loan. In this area, the proportion of contracts without robust fallback clauses has only been reduced by 28% since the beginning of 2021. Thus, FINMA is reiterating its call to banks to actively approach the syndicate banks and borrowers to adapt the corresponding loan agreements and thus have legal certainty for the future.

    The milestones of the roadmap set out in Guidance 10/2021 for 2021 remain relevant for all supervised institutions with outstanding LIBOR-linked contracts. Nevertheless, FINMA has set out the following practices that have proved beneficial in preparing for a successful transition from LIBOR:

    • Central project management with rigorous involvement and responsibility of the divisions
    • Establishment of approved and detailed plans with regular reporting for winding down legacy contracts without robust fallback clauses
    • Active contact with all counterparties of LIBOR contracts (in particular, not waiting for others to take the initiative) to amend the contracts and, where there is no active restructuring of the contracts to the alternative reference rate, legal assessment of the robustness of the fallback clauses in the event of the permanent cessation of LIBOR
    • Development of detailed inventory of contracts updated with the status of the negotiations with the counterparties
    • Instituting mandatory training for all client advisers on the LIBOR transition and new products in the alternative reference rate
    • Development of approved guidelines for stopping LIBOR-based new business transactions and implementing corresponding pre-trade preventive checks

    FINMA will continue to monitor the LIBOR transition after 2021. Even if the majority of supervised institutions have adhered to the milestones satisfactorily up to now, further tough legacy contracts should be expected to materialize after end-2021. FINMA will continue to monitor the further winding down of the tough legacy contract volume and potential legal risks for the most impacted banks and securities firms. Post 2021, it will also continue to monitor adherence to the relevant milestones set out in Guidance 10/2020. This means not entering into any new business transactions linked to the LIBOR rates for which new business transactions would still be possible from a technical point of view, but should be avoided from a risk management perspective; this also means observing the regulatory guidelines and expectations of various supervisory authorities (such as the FINMA, the Financial Conduct Authority/Prudential Regulation Authority of UK, the Federal Reserve Bank) and international bodies (Basel Committee on Banking Supervision and the Financial Stability Board). 

     

    Related Links 

    Keywords: Europe, Switzerland, Banking, Solvency Risk, Systemic Risk, Counterparty Credit Risk, Large Exposures, Credit Risk, Basel, SNB

    Related Articles
    News

    APRA Publishes Results of Climate Risk Self-Assessment Survey

    The Australian Prudential Regulation Authority (APRA) has published the findings of its latest climate risk self-assessment survey conducted across the banking, insurance, and superannuation industries.

    August 04, 2022 WebPage Regulatory News
    News

    ACPR Publishes Updates Related to CRD IV and Covered Bonds

    The French Prudential Supervisory Authority (ACPR) published a notice related to the methods for calculating and publishing prudential ratios under the Capital Requirements Directive (CRD IV) and the minimum requirement for own funds and eligible liabilities (MREL).

    August 03, 2022 WebPage Regulatory News
    News

    BIS Paper Contributes to Debate on Regulating NBFIs and Big Techs

    The Financial Stability Institute (FSI) of the Bank for International Settlements recently published a paper proposing a framework for classifying financial stability regulation as either entity-based or activity-based.

    August 03, 2022 WebPage Regulatory News
    News

    EIOPA Publishes Guidance on Climate Change Scenarios in ORSA

    The European Insurance and Occupational Pension Authority (EIOPA) published the risk dashboard based on Solvency II data and the final version of the application guidance on climate change materiality assessments and climate change scenarios in the Own Risk and Solvency Assessment (ORSA).

    August 02, 2022 WebPage Regulatory News
    News

    EBA and ECB Respond to Proposals on Sustainability Disclosures

    The European Banking Authority (EBA) and the European Central Bank (ECB) published their responses to the consultations of the International Sustainability Standards Board (ISSB) and the European Financial Reporting Advisory Group (EFRAG) on sustainability-related disclosure standards.

    August 01, 2022 WebPage Regulatory News
    News

    BIS Report Notes Existing Gaps in Climate Risk Data at Central Banks

    A Consultative Group on Risk Management (CGRM) at the Bank for International Settlements (BIS) published a report that examines incorporation of climate risks into the international reserve management framework.

    July 29, 2022 WebPage Regulatory News
    News

    EBA Publishes Multiple Regulatory Updates for Regulated Entities

    The European Banking Authority (EBA) published the final guidelines on liquidity requirements exemption for investment firms, updated version of its 5.2 filing rules document for supervisory reporting, and Single Rulebook Question and Answer (Q&A) updates in July 2022.

    July 29, 2022 WebPage Regulatory News
    News

    EIOPA Issues SII Taxonomy and Guide on Sustainability Preferences

    The European Insurance and Occupational Pensions Authority (EIOPA) published Version 2.8.0 of the Solvency II data point model (DPM) and XBRL taxonomy.

    July 29, 2022 WebPage Regulatory News
    News

    EESC Opines on Proposals on CRR and European Single Access Point

    The European Union published, in the Official Journal of the European Union, an opinion from the European Economic and Social Committee (EESC); the opinion is on the proposal for a regulation to amend the Capital Requirements Regulation (CRR).

    July 29, 2022 WebPage Regulatory News
    News

    HM Treasury Publishes Multiple Regulatory Updates in July 2022

    HM Treasury published a draft statutory instrument titled “The Financial Services (Miscellaneous Amendments) (EU Exit) Regulations 2022,” along with the related explanatory memorandum and impact assessment.

    July 29, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8423