With the COVID-19 pandemic highlighting the “fundamental weakness” in the London Interbank Offered Rate, financial and nonfinancial firms must accelerate their efforts to transition away from it, the Financial Stability Board said in a progress report issued today. “With only one year left until end-2021, all market participants…must now ensure they follow the necessary steps to avoid disruption to the performance of their contracts,” FSB said. “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.”
In the U.S., the report noted that the Alternative Reference Rates Committee will prioritize the movement of legacy derivative positions from Libor to the Secured Overnight Finance Rate before the end of 2021; the development of tools to support operational and infrastructure preparedness; work on potential legislative relief for legacy contracts with no fallback language; work on tax, regulatory and accounting measures to support the transition; and outreach and education.
FSB said its next steps will be to collaborate with international stakeholders to design key metrics that will assess global Libor exposures and transition status, as well as a list of questions to monitor progress. Read the progress report.