In a series of statements and reports, the Financial Stability Board ("FSB") highlighted recommendations to facilitate an orderly transition from the London Inter-Bank Offered Rate ("LIBOR") by the end of 2021.
The FSB published:
- an updated Global Transition Roadmap for LIBOR, which provides (i) extracts from recommendations made by national working groups and (ii) an overview of steps that firms must take to complete their transition;
- a paperexamining overnight risk-free rates ("RFRs") and term rates that, among other things, cautions against transitioning to forward-looking term rates derived from overnight RFRs;
- a statementconcerning the use of ISDA spread adjustments in cash products, primarily supporting the LIBOR transition in loan markets, which the FSB referred to as "an area of concern with much new lending still linked to LIBOR"; and
- a statementrecommending that regulatory authorities set universal, consistent expectations that regulated entities stop the use of LIBOR in new contracts in sufficient time so that LIBOR may be discontinued on the relevant announced timetable for the relevant currency; the FSB indicated, among other things, that it "fully supports" guidance issued by U.S. banking regulators in November 2020 and March 2021.
Additionally, the FSB expressed support for an IOSCO statement, published on June 2, 2021, that "reiterates the importance of ensuring a smooth and timely transition away from LIBOR."
Primary Sources
- FSB Regulatory Guidance: Global Transition Roadmap for LIBOR
- FSB Report: Interest Rate Benchmark Reform - Overnight Risk-Free Rates and Term Rates
- FSB Statement: FSB OSSG Supports Use of the ISDA Spread Adjustments in Cash Products
- FSB Statement: FSB Statement on Smooth and Timely Transition away from LIBOR
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