FSB Statement to Support Preparations for LIBOR Cessation
Completion of the steps laid out in the FSB’s Global Transition Roadmap is now critical and market participants need to act urgently to ensure they are fully prepared for LIBOR cessation by the end of this year.
Most LIBOR panels will cease at the end of this year, with certain key USD settings continuing until end-June 2023 to support the rundown of legacy contracts, executed before January 1 2022, only.
Continued reliance of global financial markets on LIBOR poses risks to global financial stability. With only a few weeks remaining to the end of 2021, it is now critical that market participants act urgently to complete any remaining steps set out in the FSB’s Global Transition Roadmap, with global and national financial regulators closely monitoring progress. The FSB emphasises that the continuation of some key USD LIBOR tenors through to 30 June 2023 is intended only to allow legacy contracts to mature, as opposed to supporting new USD LIBOR activity.
The key points covered in the statement are as follows:
Significant progress has been made in transitioning to Risk-Free Rates (RFRs), but market participants still need to finalise preparations to cease new use of LIBOR by end-2021.
Transition should be primarily to overnight RFRs, the most robust benchmarks available, to avoid reintroducing the weaknesses of LIBOR.
Active transition of legacy contracts remains the best way for market participants to have control and certainty over their existing arrangements.
The report notes that the FSB will continue to monitor the final steps in completing LIBOR transition over the coming months. Post end-2021, the FSB will monitor the effort to continue reducing the stock of legacy contracts which are using synthetic LIBOR rates, any continuing new issuance of USD LIBOR contracts post end-2021, and the size and resolution of legacy contracts referencing USD LIBOR that are due to mature after end-June 2023. The FSB will review these issues in mid-2022 and assess the implications for any further supervisory and regulatory cooperation that may be required.