Following up on our past LIBOR posts, in this update on the transition away from LIBOR (London Interbank Offering Rate), and other interbank offering rates (“IBOR”) denominated in other currencies, we discuss some recent issuances by global and US government regulators on the LIBOR transition. The LIBOR transition requires considerable work from all market participants and regulators are making it clear that the time for action is now.

Commodity Futures Trading Commission

Three divisions of the U.S. Commodity Futures Trading Commission (“CFTC”) issued no-action letters on December 17, 2019, regarding temporary relief from regulatory requirements when amending swap contracts to include sufficient fallback language and risk-free rates that will address the end of the use of IBOR. Until December 31, 2021, the Divisions of Swap Dealer and Intermediary Oversight, Clearing and Risk, and Market Oversight, will not recommend that the CFTC take action against market participants for noncompliance with certain regulatory requirements when amending these swap contracts, such as business conduct requirements, uncleared swap margin rules and swap clearing requirements. The CFTC has made this effort in order to facilitate market participants’ transition from IBOR. The letters are available Read the CFTC staff letters.

New York State Department of Financial Services

In the same spirit, on December 23, 2019, the New York State Department of Financial Services (“NYDFS”) issued an industry letter requesting that all the institutions that it regulates submit transition plans to the NYDFS addressing their LIBOR exposure. Among the issues the plan should address are (1) programs to identify, measure, monitor and manage the financial and non-financial risks of transition from LIBOR, (2) processes for analyzing and assessing alternative rates, communications with customers and counterparties, and operational readiness, and (3) the corporate governance framework of the regulated institution. The responses are due by February 7, 2020. The NYDFS aims to “seek assurance that regulated institutions’ boards of directors, or the equivalent governing authorities, and senior management fully understand and have assessed the risks associated with LIBOR cessation, have developed an appropriate plan to manage them and have initiated actions to facilitate transition.”

Financial Stability Board

Finally, the Financial Stability Board (“FSB”), a group of international financial system regulators, issued a progress report on December 18, 2019, as an update from their original 2014 report on reforming major interest rate benchmarks. The report notes that across all jurisdictions, the common view is to use overnight risk-free rates across global interest rate markets and that legacy IBOR referencing contracts need more robust fallback language included. The report also notes that there has been progress in the derivatives and securities market, but lending markets have been slower in the transition, stating that the “[t]ransition away from LIBOR in particular requires significant commitment and sustained effort from both financial and non-financial firms across many jurisdictions to reduce risks to financial stability ahead of the end of 2021.”

“The LIBOR Transition” is a periodic series of updates discussing reference interbank offering rates, such as LIBOR, and the challenges involved in navigating a successful transition from their use as reference rates of choice in the market. Norton Rose Fulbright has assembled a group of its lawyers from around the globe to stay on top of these issues and assist clients in the transition to new reference rates. More information can be found  on our Norton Rose Fulbright web site.