FSB Issues Roadmap, Additional Resources for Libor Transition

As banks prepare for the cessation of Libor—certain tenors of which are set to begin phasing out at the end of 2021—the Financial Stability Board today published an updated global transition roadmap identifying steps firms should take to ensure an orderly transition prior to the end of the year.

While the roadmap does not constitute regulatory advice, it recommends that by mid-2021, firms should have determined which of their legacy contracts can be amended ahead of year-end and established formalized plans to do so where counterparties agree. Where Libor-linked exposures extend beyond year-end, firms should make contact with other parties to discuss how existing contracts may be affected, FSB said.

Firms should also have systems and processes in place to support the transition, and aim to use robust alternative reference rates—such as the Secured Overnight Financing Rate, the Alternative Reference Rates Committee’s preferred Libor alternative—in new contracts wherever possible. By year-end, FSB recommended that all new business contracts be conducted in alternative rates, “or be capable of switching at limited notice” as additional Libor tenors stop being published.

In addition to the roadmap, FSB also published a paper reviewing overnight risk-free rates and term rates, a statement on the use of the International Swaps and Derivatives Association spread adjustments in cash products and a statement encouraging authorities to set globally consistent expectations regarding the cessation of Libor.