On 20 November 2020, the Financial Stability Board (FSB) published a progress report on implementation of reforms to major interest rate benchmarks.
Among other things the report notes:
- Production of LIBOR cannot be guaranteed after the end of 2021. The administrator of LIBOR, ICE Benchmark Administration, has recently announced that it will consult on its intention that the euro, sterling, Swiss franc, and yen LIBOR panels would cease at end-2021. Announcements in relation to US dollar LIBOR are expected to follow. In parallel, the UK FCA set out its potential approach to the use of proposed new powers under the Financial Services Bill to ensure an orderly wind down of LIBOR.
- With only one year left until end-2021, all market participants – both financial and non-financial firms across the globe – must now ensure they follow the necessary steps to avoid disruption to the performance of their contracts. This will require steps to stop issuance of new products linked to LIBOR and efforts to transition away from LIBOR in legacy contracts wherever feasible.
- Due to the widespread use of LIBOR around the world, steps to assess exposures, update processes and amend contracts must be taken by a very wide range of firms, across all jurisdictions. In order to support this process, the FSB released a global transition roadmap in October setting out the high-level steps firms will need to take now and over the course of 2021 to complete their transition.
- Whilst official-sector-led solutions have been proposed to deal with narrow pool of ‘tough legacy’ contracts that cannot feasibly transition away from LIBOR by the end of 2021, the importance of active market-led transition remains. There have been a number of proposals by authorities and national working groups including in the US, UK and EU to help manage an orderly wind-down of LIBOR and, in particular, provide a legislative solution for tough legacy contracts. However, market participants should continue to progress their transition efforts and plans proactively, particularly through active conversion and the insertion of robust and workable fallbacks where feasible. Cooperation among authorities internationally is also encouraged in order to coordinate proposed solutions across borders.