The transition from Interbank Offered Rates (IBOR) to Alternative Risk-Free Rates (RFRs) has an impact on all financial and non-financial institutions operating with the impacted floating reference rates. It affects a wide range of financial instruments on the derivative and cash markets.

This blog edition highlights notable developments made publicly available by the global regulatory community, industry working groups and/or infrastructure providers over the month of October 2020. You will find more detail in our monthly EY IBOR Transition Newsletter, to which you may subscribe through the following link.

In the Swiss market, the FINMA published the long-awaited LIBOR Transition Roadmap containing recommendations for supervised institutions to be fully prepared for a discontinuation of LIBOR in the main currencies. Where necessary, the FINMA will take institution-specific measures to limit the risks of inadequate preparation.

The situation has also evolved on the cessation announcement front. ICE Benchmark Administrator (IBA) announced that it will consult on its intention to cease the publication of all GBP, EUR, CHF and JPY LIBOR settings after December 31, 2021. IBA later announced that it will also consult on its intention to cease publication of the certain USD LIBOR tenors in June 2023. While this was designed to deal with high volumes of USD LIBOR-linked tough legacy contracts, it has created other transition challenges (e.g., multi-currency products, client communication etc.).

Both announcements are with regard to the consultations and not with regard to the cessation of the respective LIBORs themselves. IBA expects to make separate announcements in this regard following the outcome of the consultations, and subject to any rights of the Financial Conduct Authority to compel IBA to continue publication. This drove ISDA to publish a statement in response to clarify that this announcement does not constitute an index cessation event under the IBOR Fallbacks Supplement or the ISDA 2020 IBOR Fallbacks Protocol and therefore will not trigger the fallbacks or have any effect on the calculation of the spread.

Moreover, Refinitiv Benchmark Services (UK) Limited (RBSL) (the administrator of CDOR) announced that calculation and publication of the 6-month and 12-month CDOR tenors will cease from May 17, 2021 onwards, the last day of publication being May 14, 2021.

In the meantime, industry associations and working groups are still publishing various documents to ease the transition for stakeholders. Firstly, the Loan Market Association (LMA) published various Rate Switch Documentation and RFR Terms for Replacement of Screen Rate Clauses to further assist market participants when including active transition mechanisms in their loan documentation for LIBOR transition. Next, the Alternative Reference Rates Committee (ARRC) released conventions for using SOFR in arrears, both daily simple SOFR and daily compounded SOFR, used in bilateral business loans. These are voluntary and may not be applicable to all segments of the business loan markets. Finally, the Working Group on Euro Risk-Free Rates (EUR RFR WG) launched public consultations on fallbacks to EURIBOR, for which the deadline for responding is January 15, 2021.

While important successes have been achieved in the replacement of LIBOR, among which are  good adherence levels to the ISDA Fallback Protocol and continued issuance of RFR linked products, no significant reduction in the LIBOR-based contract volume has yet been observed. With only a short period of time until the proposed discontinuation of many LIBOR rates and their replacement by RFRs, the time to act is now. Increased efforts towards minimising the impact of LIBOR replacement is required from all institutions.

Swiss highlights:

  • Raiffeisen Schweiz issued their first AT1 Debt that fully incorporates the SARON fallback mechanism
  • Zuger Kantonalbank announced launch of SARON-based mortgages
  • Baloise Bank and Bank Zimmerberg launched SARON-based mortgages
  • Nidwalder Kantonalbank launched SARON-based mortgages
  • FINMA Risk Monitor 2020 classified LIBOR demise as major risk
  • FINMA published transition roadmap for LIBOR
  • Development of SARON

Eurozone specific highlights:

  • EUR RFR WG statement welcoming ISDA IBOR Fallbacks Protocol and IBOR Fallbacks Supplement
  • EUR RFR WG launched public consultations on fallbacks to EURIBOR

International highlights:

  • ISDA published “Transition to RFRs Review” report
  • ISDA published podcasts: “Episode 1: Goodbye LIBOR”, “Episode 2: The Milestones to LIBOR Transition” and “Episode 3: Building Momentum in Alternative Rates”
  • ISDA published opening remarks from “Understanding the New IBOR Fallbacks” event
  • RBSL announced cessation of 6-month and 12-month CDOR tenors
  • ISDA published guidance relating to 6-month and 12-month CDOR tenors’ cessation
  • IBA announced that it will consult on its intention to cease publication of all GBP, EUR, CHF and JPY LIBOR settings
  • ISDA published statement on IBA and FCA announcements on LIBOR consultations
  • FSB published progress report on benchmarks reform
  • APLMA initiated new discussions on SOFR-based syndicated loans
  • LMA published various Rate Switch Documentation and RFR Terms for Replacement of Screen Rate Clause
  • LMA updated list of syndicated and bilateral loans referencing RFRs
  • IBA announced it will consult on its intention to cease publication of one week and two-month USD LIBOR and remaining USD LIBORs
  • ISDA issued statement on IBA, FCA and Federal Reserve Board announcements on USD LIBOR consultation
  • ASIC issued information sheet on managing conduct risk during LIBOR transition

UK specific highlights:

  • LSB and UK Finance published guidance for LIBOR transition
  • HM Treasury and FCA held briefing on Financial Services Bill
  • GBP RFR WG published October 2020 newsletter
  • HMRC published policy paper on tax impact of the withdrawal of LIBOR and other benchmark rates
  • FCA published statement on potential approach to proposed new powers relating to LIBOR wind down
  • FCA published consultations on proposed policy regarding potential benchmark-related new powers
  • FCA updated Q&A on conduct risk during LIBOR transition
  • FCA issued statement on IBA’s proposed consultation on intention to cease USD LIBOR and new powers related to benchmark cessation
  • GBP RFR WG published November 2020 newsletter

US specific highlights:

  • New York Senator introduced bill on LIBOR reform
  • Fannie Mae and Freddie Mac updated LIBOR Transition Playbook
  • ARRC released memorandum on capital and liquidity regulatory considerations in the IBOR transition
  • OCC, Federal Reserve and FDIC issued statement on reference rates for loans
  • Federal Reserve’s vice chairman offered preview into how the Federal Reserve could help on LIBOR legacy contracts
  • CFTC chairman issued statement on transition away from IBORs
  • ARRC released conventions for SOFR in arrears in bilateral business loans
  • ARRC released FAQs for business loans hardwired fallback language
  • Federal Reserve Board welcomed proposal and supervisory statements that enable clear end date for USD LIBOR
  • ARRC welcomed major milestone in transition from USD LIBOR
  • Federal Reserve, FDIC and OCC issued statement on LIBOR transition