IBOR Transition – Keeping Firms Updated 

I last posted about the ISDA fallbacks announcement last month, regarding what will be in place for legacy derivatives and contracts if LIBOR ceases to exist. Today, FSB has published a progress report on the implementation of reforms to major interest rate benchmarks. In it they highlight that ICE Benchmark Administration (IBA) also announced, on the 18th Nov, its intention to consult on the cessation of LIBOR in GBP, EUR, CHF and JPY, with on going consultations for USD.  

The IBA announcement stresses that it should not be taken as commitment either way: that LIBOR will or will not cease as of end Dec 2021 in these currencies. However, the timing of the announcement and recent developments, such as the formalisation of the ISDA fallback protocol and the improving conditions in the new risk free rate (RFR) contract markets, seem to suggest that all is on schedule. Indeed, many experts expect that cessation announcements will come fairly soon. 

FSB Official Sector Steering Group (OSSG) Co-Chairs Andrew Bailey and John C. Williams commented in their statement: “The message that all market participants should take from this Report and this week’s announcements from the IBA and FCA is that we need to be prepared for the end of LIBOR. Everyone needs to be ready.” 

So what is ready? FSB has contributed a high level roadmap with the key items: 

• Identification and Assessment: firms should have identified existing LIBOR exposures and established a project to transition in advance of end-2021. 
• ISDA Fallbacks Protocol: firms should have adopted the protocol and bilaterally agreed for legacy non-cleared trades. 
• Non-LIBOR linked products: by the end of 2020 firms should be able to offer customers non-LIBOR linked loans and explore non-LIBOR linked funding solutions. 
• Systems implementation: By mid 2021 firms are expected to have migrated systems to a state where valuation, risk and hedge accounting are all fully aware of the new curve frameworks. 
• LIBOR cessation: end 2021 be completely prepared for the eventuality. 

FCG is actively working with financial and non-financial corporation to assist with these stages either with preliminary gap analysis or the technical aspects of implementation. We have had discussions with firms in very different stages of their preparedness, from preliminary to progressive. We are keen to speak to firms who believe that expert help in these areas will be useful and are always happy to take initial meetings with those who are looking to step into or enhance their transition process.