ISDA will review and amend its fallback language following receipt of letters from the Financial Conduct Authority ("FCA") and the Federal Reserve Board ("FRB") expressing concern regarding ISDA's fallback language for credit-sensitive rates. The definitions of the Bloomberg Short-Term Bank Yield Index ("BSBY") and Ameribor recently published by ISDA contemplate that the FRB or, in the case of BSBY, the FCA could recommend a replacement rate or officially endorse or convene a committee to do so. Similar language appears in ISDA's definition for other floating rate options. However, the regulators requested that ISDA remove the language because they "do not intend to endorse or convene any committee for the purpose of recommending or nominating any replacement rate for "any credit sensitive" rates.

In response to the FCA and FRB, ISDA stated that it will:

  • amend its definitions to remove references to the regulators by October 2021;
  • collaborate with the Loan Syndications and Trading Association ("LSTA") and ISDA's working groups to publish forms of conformation that incorporate LSTA's fallback language for credit-sensitive rates; and
  • conduct a general review in 2022 of its documentation to assess the FCA's feedback that ISDA's standard documentation for BSBY does not meet the requirements under the UK Benchmarks Regulation for "robust" fallbacks.

Primary Sources

  1. FCA Comment Letter: Fallbacks to BSBY and compliance with BMR fallback requirements
  2. FRB Comment Letter: ISDA BSBY Fallbacks
  3. ISDA Letter to FCA: Fallbacks for 'Credit Sensitive Rates'
  4. ISDA Letter to FRB: Fallbacks for 'Credit Sensitive Rates'

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