Planning for LIBOR Transition

The Australian Securities and Investments Commission (ASIC) has written to the CEOs of several major Australian financial institutions regarding their preparations for the end of LIBOR (London Interbank Offered Rate) and their transition to alternative benchmarks.

Following the global financial crisis, several financial benchmarks were found to have been subject to manipulation attempts by market participants.

In response to this, global regulators initiated IBOR reforms and have been working with markets to:

  • strengthen the interbank offered rates,
  • identify alternative risk-free rates (RFRs) and
  • to ensure contracts referencing current interbank offered rates (IBORs) include robust fall-back provisions.

The UK Financial Conduct Authority (FCA) has stated that it will no longer use its powers to sustain LIBOR beyond 2021.

ASIC, APRA and RBA are seeking assurance that the senior management in these institutions fully appreciates the impact and risks and is taking appropriate action ahead of the end of 2021.

The financial regulators expect all institutions that currently rely on LIBOR to consider the impact of LIBOR transition on their business. In particular, users of LIBOR should:

  • be aware of the size and nature of their exposures to LIBOR;
  • put in place robust fall-back provisions in contracts referencing LIBOR; and
  • be taking action to transition to alternative rates.

Benchmark Reform Speech

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