IBOR Reform - A page to see the latest information

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ISDA Benchmark Reform and Transition from LIBOR InfoHub

ISDA has created a page which will be updated on a regular basis as relevant information becomes available globally and will serve as the central repository for information from ISDA relating to financial benchmark reform and the transition from LIBOR. If you have any questions or would like additional information in relation to these matters

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30-Nov-2020 - FCA response to IBA’s proposed consultation on intention to cease US$ LIBOR | FCA

ICE Benchmark Administration (IBA), the FCA-regulated and authorised administrator of LIBOR, has today announced that it will consult in early December on its intention to cease US$ LIBOR. IBA intends that, subject to confirmation following its consultation, one week and two month US$ LIBOR settings will cease at end-2021, and that the US$ LIBOR panel will cease at end-June 2023.

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30-Nov-2020 - ISDA Statement on IBA, UK FCA and Federal Reserve Board Announcements on US Dollar LIBOR Consultation – International Swaps and Derivatives Association

ISDA has published the following statement in response to today’s announcements by ICE Benchmark Administration (IBA), the administrator of LIBOR, the UK Financial Conduct Authority (FCA) and the Federal Reserve Board (FRB).

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30-Nov-2020- ICE Benchmark Administration to Consult on Its Intention to Cease the Publication of One Week and Two Month USD LIBOR Settings at End-December 2021, and the Remaining USD LIBOR Settings at End-June 2023

 ICE, a leading operator of global exchanges and clearing houses and provider of mortgage technology, data and listings services, announces that ICE Benchmark Administration Limited (IBA) will consult on its intention to cease the publication of the one week and two month USD LIBOR settings immediately following the LIBOR publication on December 31, 2021, and the remaining USD LIBOR settings immediately following the LIBOR publication on June 30, 2023.

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18-Nov-2020 - Intercontinental Exchange - ICE Benchmark Administration to Consult On Its Intention to Cease the Publication of GBP, EUR, CHF and JPY LIBOR

ICE, a leading operator of global exchanges and clearing houses and provider of mortgage technology, data and listings services, announces that ICE Benchmark Administration Limited (IBA) will consult on its intention to cease the publication of all GBP, EUR, CHF and JPY LIBOR settings.

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What is LIBOR?

The London Interbank Offered Rate (LIBOR) is a series of benchmark interest rates at which banks offer to lend funds to one another in the international interbank market. It reflects how much it costs banks to borrow from one another and is used as the reference rate for around $350 trillion in financial products.

Why is LIBOR being replaced?

LIBOR fixings are intended to represent the interest rate charged on short-term (unsecured) loans made between banks. Since the financial crisis, the volume of these transactions has dramatically diminished leading regulators to question their transaction-based definition. Historically, LIBOR has been used as a measure of trust within the financial system as it reflects the confidence banks have in each other's financial health. However, the recent manipulation scandal has led many to question the validity of these benchmarks and whether it truly serves the intended purpose. Furthermore, strict regulations, brought in since the GFC, have inadvertently reduced the liquidity within the interbank funding market further compounding the lack of transparency of the reported rates.

In the absence of robust transactional data to base LIBOR consensus on, individual submissions have become a subjective and unclear process requiring "expert" judgment by each contributing bank. Consequently, there has been an observable downwards trend in rate submitters willing to sustain the various benchmarks, due to their sensitivities towards perceived litigation risks.

Following the Wheatley review into LIBOR, the FSB and various other industry bodies have been spearheading collaborative initiatives to strengthen or reform the LIBOR processes.

When will the transition take place?

The transition to new RFRs is fluid and led by the market. In 2013, the FCA recommended the replacement of LIBOR with alternative RFRs. Subsequently, the FSB published its report on interest rate benchmark reform in July 2014 and concluded that an RFR is in many cases are more suitable than a LIBOR which is not supported by sufficient transactional data to make it robust. In July 2017, Andrew Bailey announced that the FCA had reached a voluntary agreement between current panel banks to sustain LIBOR in its current form until the end of 2021. As LIBOR will not be banned post-2021, it is possible that it will continue to be published, but in more recent speeches both ISDA and the FCA have been pushing the industry to migrate away from reliance upon the rate.

What is the industry doing to replace LIBOR?

Working groups have been set up, in multiple jurisdictions, to bring together representatives from both the public and private sectors to determine the most appropriate RFRs in the relevant jurisdictions. Four of the working groups, the UK, US, Switzerland and Japan have already identified their preferred RFRs, which are SONIA, SOFR, SARON and TONAR respectively. This represents four of the five currencies for which LIBOR is currently published. For EUR the RFR will be €STR, a new rate that was launched on Oct 2 2019.

ISDA is leading the work on implementing fallback rate documentation. In 2018, ISDA published a consultation seeking the views of participants on a number of possible adjusted RFRs and Spread Adjustments to ensure the least value transfer upon the event of LIBOR ceasing to exist.

Want to learn more?

For more information regarding the IBOR Reform please contact us on contact@solum-financial.com