The FSB outlined progress on (i) the development of overnight risk-free rates ("RFRs") and (ii) reforms to interbank offered rates ("IBORS").

In the progress report, the FSB focused on the following three areas:

  • Strengthening of IBORs: The FSB stated that while LIBOR has improved since the formation of the FSB's Official Sector Steering Group, authorities cautioned that LIBOR publication may terminate once official sector support is removed at the end of 2021. The FSB further said that other major IBORS have been working on improving "existing methodologies" to make them more "grounded in actual transactions," and to enhance regulatory frameworks and supervision.

  • Transitioning to alternative reference rates: The FSB stated that there must be a thorough transition to new reference rates in the markets dealing with the disappearance of IBORs, particularly markets that rely on LIBOR. The FSB explained that significant progress has been made in connection with identifying RFRs and other alternative reference rates in currency areas that are dependent on LIBOR benchmarks. The FSB added that progress has also been made on planning for, and in certain markets executing, the transition to those RFRs. Additionally, the FSB cited the Federal Reserve Board's and Bank of England's efforts to publish (i) the Secured Overnight Financing Rate as the RFR for the U.S. dollar and (ii) the Sterling Overnight Index Average as the RFR for the British Pound as further evidence of progress.

  • Enhancing contractual robustness: The FSB said that member authorities and ISDA, as well as other trade associations, have made progress in strengthening contractual robustness "to the risk of discontinuation of major interest rate benchmarks." In particular, the FSB identified the following examples: (i) ISDA published a consultation paper on fallbacks for certain currencies of LIBOR and other interest rate benchmarks in July; (ii) the FSB published a statement on the same day that ISDA published its consultation paper on reforms to IBOR, and the development of RFRs; and (iii) ISDA published a Benchmarks Supplement in September intended to allow parties to derivatives contracts to include additional provisions addressing requirements under the European Union Benchmark Regulation. The FSB also reported on publication by the Federal Reserve's Alternative Reference Rates Committee ("ARRC") of Guiding Principles for contract language and two consultations on contract language for floating rate notes and syndicated loans.

In addition, the FSB described further actions that it will take in the near future pertaining to the transition away from LIBOR for other markets. The FSB will publish another progress report at the end of 2019.

Cadwalader, Wickersham & Taft LLP serves as counsel to the ARRC and assisted the ARRC as drafting counsel for the two consultations on contract language for floating rate notes and syndicated loans.

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