Leaving LIBOR:
A Landmark Transition

The move away from the London Interbank Offered Rate (LIBOR) is a global phenomenon that has the financial industry mobilizing ahead of a looming deadline expected for the end of 2021.

Updated: July 17, 2020

Industry developments

  • The UK government announced that it intends to move forward legislation that would enhance the Financial Conduct Authority’s (FCA) authority under the Benchmark Regulation (BMR). This would provide the FCA the ability to manage and direct an orderly wind-down period of critical benchmarks like LIBOR. This legislation follows the Working Group on Sterling Risk-Free Reference paper on the identification of “Tough Legacy” issues, proposing UK legislation to assist with contracts that do not have robust fallback provisions, or with contracts that would not be able to be amended prior to LIBOR cessation.

  • The FCA released a statement on the planned amendments to the BMR, which welcomed the UK government’s legislation. The legislation would empower the FCA to direct the administrator of LIBOR to change the methodology used to compile the benchmark, as a means to protect consumers and market integrity. The FCA continues to urge market participants to move their contracts away from LIBOR, prior to LIBOR being deemed non-representative, where possible.

  • The Financial Stability Board (FSB) released a statement on the impact of COVID-19 on global benchmark reform, which acknowledges COVID-19 impacts on transition plans and calls for firms to continue transitioning to alternative reference rates before the end of 2021.

  • Bank of England announced they will begin publishing the SONIA Compounded Index on August 3, 2020 as outlined in the response to the Discussion Paper on Supporting Risk-Free Rate transition.

  • The Securities and Exchange Commission’s Office of Compliance Inspections and Examinations announced the LIBOR Transition Preparedness as an examination priority for 2020.

  • The Consumer Financial Protection Bureau (CFPB) released an updated Consumer Handbook on Adjustable Rate Mortgages (CHARM) to help consumers better understand adjustable rate mortgage loan products and released a Noticed of Proposed Rulemaking (NPRM) related to the anticipated discontinuation of LIBOR. The NPRM will be open for public comments until August 4, 2020.

  • ISDA published a report summarizing the final results of the consultation on pre-cessation fallbacks for LIBOR. The results indicate that a significant majority of respondents support including pre-cessation and permanent cessation fallbacks without optionality or flexibility in the amended 2006 ISDA Definitions for LIBOR, and in a single protocol for including the updated definitions in legacy trades. ISDA is expected to publish amendments to the 2006 ISDA Definitions in July. This will incorporate the fallbacks into new trades. ISDA also plans to launch a protocol at the same time allowing market participants the option to incorporate the revisions into legacy trades. More information from ISDA can be found on their Benchmark Reform and Transition from LIBOR website. This includes information on items such as Supplement 64, which allows counterparties to specify discount rates on swaptions confirmations, ISDAs new factsheet outlining the need to change fallbacks and Bloomberg’s Rulebook for IBOR Fallback Methodology.

  • The Alternative Reference Rates Committee (ARRC) announced further details regarding its recommendation of spread adjustments for cash products, released updated recommended fallback language for syndicated loans, released recommended fallback language for private student loans, and released a tool to help firms move internal systems and processes away from LIBOR. Additionally, the ARRC filed a letter with the CFTC’s Division of Swap Dealer and Intermediary Oversight (“DSIO”) requesting for specific modifications to the relief provided in the IBOR No-Action Letter for Qualifying Amendments to address certain additional changes associated with the IBOR transition as a result of the DCO discounting changes. The ARRC also announced the “SOFR Summer Series”, a series of six 60-minute webinars taking place in July and August. The first webinar on July 13 featured remarks from John Williams, President of the New York Federal Reserve; Andrew Bailey, Governor of the Bank of England; Tom Wipf, Chair of the ARRC; and Tushar Morzaria, Chair of the Working Group on Sterling Risk-Free Reference Rates. Registration information is available here. These recent developments follow a number of ARRC updates which include:

    Podcasts | MARKETS
Benchmark Reform Around the World
31:03 In our second podcast episode, J.P. Morgan's Charles Bristow, global head of Rates, Chris Palmer, who leads the firm-wide LIBOR transition program and Cyprien Decoux, head of Rates Structuring EMEA, discuss international benchmark reform.
    Podcasts | MARKETS
Building a Benchmark: Hear From the Experts
27:41 Guest speaker Nadine Bates, mortgage-finance firm Fannie Mae’s Treasurer, and Sandie O’Connor, who has worked at J.P. Morgan for over 30 years and chaired the Alternative Reference Rates Committee (ARRC), discuss transitioning to SOFR in the U.S. benchmark reform.

Changes to Interbank Offered Rates (IBORs) and other benchmark rates: Certain interest rate benchmarks are, or may in the future become, subject to ongoing international, national and other regulatory guidance, reform and proposals for reform. For more information, please consult: https://www.jpmorgan.com/global/disclosures/interbank_offered_rates

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