Welcome to the latest issue of Mayer Brown’s IBOR Transition Digest—a periodic compendium of global regulatory and market developments and insights on the complex issues confronting financial market participants as they plan to transition from LIBOR and its variants to replacement benchmark interest rates. As attention to IBORtransition accelerates and becomes more focused, it is critical to have access to comprehensive and timely resources about the market.
For additional resources and an introduction to our global cross-practice IBOR Transition Task Force, please visit Mayer Brown’s IBOR Transition portal.
Financial Regulators Clarify Key LIBOR Transition Considerations But Some Questions Remain
Eye on IBOR Transition, 22 October 2021
On 20 October 2021, in a Joint Statement on Managing the LIBOR Transition, the Board of Governors of the Federal Reserve System, Consumer Financial Protection Bureau, Federal Deposit Insurance Corporation, National Credit Union Administration, Office of the Comptroller of the Currency, and State Bank and Credit Union Regulators emphasized their expectations that supervised institutions will transition away from LIBOR in an orderly fashion by the end of 2021. Transition preparedness will be an increasing area of supervisory focus and review.
United States – Syndicated and Bilateral Loans
LIBOR Transition Playbook
Fannie Mae and Freddie Mac, 15 October 2021
Updating the playbook for market changes since April 2021, including the availability of Term SOFR.
Loan Syndications & Trading Association, 14 October 2021
Discussing the spread adjustment dynamics of the first loans emerging with SOFR as the initial interest rate, and reminding the market that the ARRC stated, in its January 2020 spread adjustment consultation, “the recommended spread adjustments would not and are not intended to apply to new contracts referencing SOFR.”
United States – General
Act Now, and Choose Wisely – speech of SVP Nathaniel Wuerffel at 2021 ISDA North America Conference
Federal Reserve Bank of New York, 27 October 2021
“X marks the stop. I hope this is already abundantly clear, but we are at the end of the road for LIBOR…. I’ve discussed the importance of acting now to move from USD LIBOR. But what reference rate you choose to move to is just as critical…. When considering alternative reference rates to USD LIBOR—whether SOFR or another rate—market participants should carefully examine the construction of those rates and their underlying markets.”
Remarks by Acting Comptroller of the Currency Michael J. Hsu at the ARRC SOFR Symposium
Office of the Comptroller of the Currency, 26 October 2021
“Let me be clear, the federal financial regulators have said no new Libor exposures – zombie or otherwise – after December 31, 2021, and we mean it.”
Joint Statement on Managing the LIBOR Transition
Federal Reserve/CFPB/FDIC/NCUA/OCC/SBCUR, 20 October 2021
Summarizing prior guidance and clarifying a number of key supervisory considerations, including the meaning of new LIBOR contracts, the appropriateness of alternative reference rates, and expectations for fallback language.
CFPB Joins Other Financial Regulatory Agencies in Issuing Statement on Discontinuation of LIBOR
Consumer Financial Protection Bureau, 20 October 2021
The CFPB is continuing work on finalizing its 4 June 2020 Notice of Proposed Rulemaking and FAQs relating to LIBOR transition, to address the anticipated expiration of LIBOR and expects to issue it in January 2022.
LIBOR Transition: Updated Self-Assessment Tool for Banks (OCC Bulletin 2021-46)
Office of the Comptroller of the Currency, 18 October 2021
When assessing preparedness, bank management should consider whether the bank’s LIBOR exposure and risk assessments, and cessation preparedness plans, are complete or near completion with appropriate management oversight and reporting in place, and whether replacement rate issues have been resolved and communicated with affected customers and third parties.
Bloomberg Short-Term Bank Yield Index Consultation on Methodology Enhancement
Bloomberg Professional Services, 7 October 2021
Gathering market feedback on whether to enhance the resiliency of the BSBY methodology during period of extreme market stress. Comments due by 1 November 2021.
United Kingdom – Derivatives
Financial Conduct Authority, 15 October 2021
Modifying the list of derivatives subject to the derivatives trading obligation (DTO) in line with Articles 28 and 32 of UK MiFIR, in response to Consultation Paper CP21/22.
United Kingdom – General
LIBOR and the FCA's new powers under the UK Benchmarks Regulation: questions and answers
Financial Conduct Authority, 15 October 2021
Q&A for regulated firms on the FCA’s use of powers to manage the orderly wind-down of LIBOR, and on the various publications on 29 September 2021, which were described in our 14 October IBOR Transition Digest.
Europe – Derivatives
IBOR reform moves forward: legacy transactions successfully converted to €STR
Eurex Clearing, 19 October 2021
Over the weekend of 16 October, clearing houses converted their legacy transactions referenced to EONIA to the new risk-free rate €STR, “the final step of one of the largest rates market overhauls in Europe following years of preparation by industry working groups.”
Euro Overnight Index Average (EONIA) to Euro Short Term Rate (ESTR) - Floating Rate Conversion Notice
LCH, 15 October 2021
The Floating Rate Conversion Notice given by LCH in relation to the transition from EONIA to €STR in the SwapClear service and SwapClear FCM service completed over the weekend of 16 October.
Europe – General
Benchmark Rate Transition Risks – EBA/REP/2021/30: Analysis of the EU/EEA Banking Sector’s Exposures Linked to Benchmark Rates and Transition Risks Relating to Interbank Offered Rates
European Banking Authority, 14 October 2021
Concluding that banks still hold major volumes of financial instruments related to ceasing benchmark rates and recommending actions to be taken in a timely manner.
Global – Derivatives
Opening Remarks – speech by Scott O’Malia at the 2021 ISDA Regional Event
International Swaps and Derivatives Association, 27 October 2021
Discussing the pressing need to move off LIBOR, urging adherence to the IBOR Protocol, and updating on progress developing a second protocol addressing other IBORs that use LIBOR as an input.
ISDA response to the Bank of England consultation Derivatives clearing obligation – introduction of contracts referencing TONA: Amendment to BTS 2015/2205
International Swaps and Derivatives Association, 26 October 2021
Expressing support for the 29 September 2021 consultation proposing to introduce a clearing obligation for OIS that reference TONA, to come into force on or shortly after 6 December 2021.
ISDA response to the Bank of England consultation re Derivatives clearing obligation – modifications to reflect interest rate benchmark reform: Amendments to BTS 2015/2205
International Swaps and Derivatives Association, 23 September 2021
Responding to the 20 May 2021 consultation with a focus on modifications to contracts subject to the clearing obligation and relating to benchmarks currently within the scope of the clearing obligation that are being discontinued by January 2022.
Replays of all of our IBOR Transition Webinar Series presentations are available via iTunes podcasts, Google play or Spotify, as well as on the IBOR Transition Webinar Series page of our dedicated IBOR Transition portal.
Requirements of Regulators Around the World – UK, EU, Asia, and US
Webinar, 30 September 2021
Comparing regional regulatory regimes and the status of legislation to facilitate IBOR transition.
IBOR Transition – an introduction to conduct risk
Webinar, 16 September 2021
Mayer Brown partner Marlon Paz, and head of Legal Project Management David George, discusses IBOR transition conduct risk and related risk mitigation in the first of our latest IBOR transition webinar series. With approximately 100 days until most LIBOR tenors cease to be published, additional topics to be covered during 4Q2021 include global transition regulatory requirements, industry- and subject matter-specific considerations, litigation risks, and final transition preparation tips.