On 16 October 2020, the Financial Stability Board (FSB) published a global transition roadmap for LIBOR. The roadmap sets out a timetable of actions for financial and non-financial sector firms to take in order to ensure a smooth LIBOR transition by end-2021.
The roadmap provides that:
- By the end of 2020, at a minimum: Lenders should be in a position to offer non-LIBOR linked loan products to their customers. This could be done either in terms of giving borrowers a choice in terms of the reference rate underlying their loans, or through working with borrowers to include language for conversion by end-2021 for any new, or refinanced, LIBOR referencing loans, for example if systems are not currently ready.
- By mid-2021, firms should: (1) On the basis of a full assessment of their stock of legacy contracts, have determined which can be amended in advance of end-2021 and establish formalised plans to do so in cases where counterparties agree. (2) Where LIBOR linked exposure extends beyond end-2021, make contact with the other parties to discuss how existing contracts may be affected and what steps firms may need to take to prepare for use of alternative rates. (3) Have implemented the necessary system and process changes to enable transition to robust alternative rates. (4) Aim to use robust alternative reference rates to LIBOR in new contracts wherever possible. (5) Take steps to execute formalised plans, where realistic, to convert legacy LIBOR-linked contracts to alternative reference rates in advance of end 2021.
- By end-2021, firms should be prepared for LIBOR to cease: (1) All new business should either be conducted in alternative rates or be capable of switching at limited notice. (2) 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. (3) 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.
The roadmap does not constitute regulatory advice or affect any transition expectations set by individual regulators, which may require firms to move faster in some instances.