IBOR Transition Update and Legacy Contracts (Dec 20) II

What are the expectations of regulators by the end of 2021?

• All new business should either be conducted at alternative rates or be capable of switching at limited notice.
• All business-critical systems and processes should either be conducted without reliance on LIBOR, or be capable of being changed to run on this basis at limited notice.
• For any legacy contracts for which it has not been possible to make these amendments, the implications of cessation or lack of representativeness should have been considered and discussed between the parties, and steps taken to prepare for this outcome as needed. The scope and impact of any steps taken by authorities to support tough legacy contracts, if available, should have been clearly understood and taken into account.

What are tough legacy contracts?

The concept was introduced by the FCA and other regulators. These are contracts which genuinely have no realistic ability to be renegotiated or amended to transition to an alternative benchmark.

What is happening between now and the end of 2021 for the LIBOR equivalents in other currencies?

• Japan - There is a risk free rate called TONAR - the Tokyo Overnight Average Rate.The debate on whether to discontinue their local IBOR – TIBOR – has not been resolved
• Canada - The LIBOR equivalent is CDOR - the Canadian Dollar Offered Rate and the Risk Free Rate is CORRA – the Canadian Overnight Repo Rate Average. The Bank of Canada and various market led groups are assessing the future viability of CDOR and moving the market to CORRA
• Australia - The local LIBOR equivalent is BBSW – the Bank Bill Swap Rate. This is run by the Australian Stock Exchange, which has said it intends to continue producing the rate beyond 2021 with a raft of ongoing reforms