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Transition away from LIBOR continues

ASIC, APRA and the RBA have joined forces in the transition away from LIBOR, which is expected to cease at the end of 2021.

Last week, the International Swaps and Derivatives Association (ISDA) announced that it will launch the 2020 IBOR Fallbacks Protocol on October 23.

This new protocol will implement fall-back provisions for derivative contracts referencing key interbank offered rates (IBORs), including the London Interbank Offered Rate (LIBOR).

ASIC, APRA and the RBA are urging Australian institutions to use the new ISDA protocol and supplement.

The international Financial Stability Board also issued a statement welcoming the new ISDA protocol.

"Adherence is an important step towards the orderly transition of LIBOR-referenced derivatives contracts," ASIC said.

"It is critical to the mitigation of both individual entity risks and systemic risks associated with the discontinuation of LIBOR."

The new protocol will come into effect from 25 January 2021, institutions that use derivatives contracts referencing LIBOR are encouraged to be adherent to the new protocol by that date.

"The publication of the ISDA IBOR Fallbacks Protocol and Supplement will be an important step towards the orderly transition of billions of dollars' worth of financial contracts in the derivatives market," ASIC commissioner Cathie Armour said.

"Industry wide adoption will significantly reduce the risks of contractual disputes, litigation and frustration by creating a consistent approach to fallback rates when LIBOR comes to an end. We strongly encourage institutions in Australia to adhere to the Protocol."

RBA assistant governor (financial markets) Christopher Kent added: "Timely adherence to the new ISDA Protocol is important for all users of LIBOR in derivatives contracts. Having these robust fallbacks in place for legacy contracts is a vital step in the transition away from LIBOR."

Read more: LIBORASICAPRAISDA IBOR Fallbacks ProtocolCathie ArmourChristopher KentDerivatives AssociationFinancial Stability BoardInternational SwapsLondon Interbank Offered Rate
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