06.03.2021

FSB Supports Smooth Transition From LIBOR

06.03.2021
Shanny Basar
Clearinghouses Ease Transition to Basel III

The Financial Stability Board (FSB) has published a set of documents to support a smooth transition away from LIBOR by the end of 2021.

On 5 March 2021, ICE Benchmark Administration (IBA) and the UK Financial Conduct Authority (FCA) formally confirmed the dates that panel bank submissions for all LIBOR settings will cease, after which representative LIBOR rates will no longer be available. The majority of LIBOR panels will cease at the end of this year, although a number of key US dollar (USD) settings will continue until end-June 2023, to support the rundown of legacy contracts only.

In light of these developments, and to facilitate an orderly transition by end-2021, the FSB has published the following statements and reports that set out recommendations for financial and non-financial sector firms, as well as the authorities, to consider:

  • An updated global transition roadmap that, drawing on national working group recommendations, summarises the high-level steps firms will need to take now and over the course of 2021 to complete their transition.
  • A paper reviewing overnight risk-free rates and term rates, building on the concept that the tools necessary to complete the transition are currently available. The FSB cautions market participants against waiting for the development of additional tools, in particular forward-looking term risk-free rates.
  • A statement on the use of the ISDA spread adjustments in cash products, to support transition particularly in loan markets, which remains an area of concern with much new lending still linked to LIBOR.
  • statement encouraging authorities to set globally consistent expectations that regulated entities should cease the new use of LIBOR in line with the relevant timelines for that currency, regardless of where those trades are booked.

The FSB also welcomes the statement on benchmarks transition published by the International Organization of Securities Commissions, which reiterates the importance of ensuring a smooth and timely transition away from LIBOR.

Given the limited time available until the end of 2021, the FSB strongly urges market participants to act now to complete the steps set out in its global transition roadmap.

The FSB plans to produce its next full report on progress in November 2021.

Source: FSB

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