On 14 November 2018, the Financial Stability Board (FSB) published a progress report on reforms to the major interest rate benchmarks (the Report). The Report follows up on the recommendations of the FSB’s 2014 report on the same topic which set out a series of recommendations for strengthening existing benchmarks for key interbank offered rates (IBORs) in the unsecured lending markets, and for promoting the development and adoption of alternative nearly risk-free reference rates (RFRs) where appropriate. The Report updates on:

  • strengthening of IBORs: although LIBOR has been strengthened since the FSB’s Official Sector Steering Group (OSSG) was formed, authorities have warned that publication of LIBOR may cease once official sector support for the benchmark is withdrawn at end-2021. Work has continued among the other major IBORs (EURIBOR and TIBOR) to strengthen existing methodologies to make them more grounded in actual transactions and in other ways;
  • identification of and transition to alternative reference rates: FSB member authorities are of the view that in the markets which face the disappearance of IBORs, notably markets currently reliant on LIBOR, there needs to be an orderly transition to new reference rates. Progress has been made to identify RFRs and other alternative reference rates in areas reliant on LIBOR – as exemplified by the reports of the Bank of England’s Working Group on Sterling Risk-Free Reference Rates; and
  • enhancing contractual robustness: the International Swaps and Derivatives Association (ISDA) has investigated this area, publishing a consultation paper on fallbacks for certain currencies of LIBOR and certain other interest rate benchmarks amongst other guidance and consultations.

The FSB OSSG will continue to intensify and monitor coordination efforts on the reforms to major interest rate benchmarks, and will publish a further progress report in late 2019.