On 4 December 2019, the International Swaps and Derivatives Association (ISDA) published a letter to the co-chairs of the Financial Stability Board (FSB) Official Sector Steering Group (OSSG) in response to a November 2019 letter from the OSSG co-chairs (see previous blog here).

In the letter, the ISDA reaffirms its commitment to implementing robust fallbacks for derivatives referencing key interbank offered rates (IBORs). However, in order to further increase market understanding of the implications of a non-representative LIBOR, ISDA believes it is critical for market participants to receive further clarity on the following:

  • a statement from the UK FCA and the ICE Benchmark that the “reasonable period” during which a “non-representative” LIBOR would be published would be minimal (i.e. a number of months not years) after the FCA announces that LIBOR is no longer representative; and
  • a public and definitive confirmation directly from central counterparties (CCPs) clearing LIBOR derivatives or its regulatory supervisor that the CCP has implemented appropriate rule changes providing that upon an announcement by the FCA that LIBOR is “non-representative”, the CCP will amend its entire portfolio of cleared LIBOR derivatives so these derivatives reference the relevant adjusted risk-free rate (RFR); or upon an announcement by the FCA that LIBOR is non-representative, the CCP will use any discretionary powers provided by its rules to amend its entire portfolio of cleared LIBOR derivatives to reference the relevant adjusted RFR.

ISDA strongly encourages the FCA to consider whether it is appropriate for a non-representative LIBOR to be published for more than a very minimal time period.

ISDA states that it is prepared to re-consult with the market on a single documentation approach and engage with relevant competition authorities once the market has the benefit of appropriate clarity on the issues described above.