FSB and BCBS – Set out supervisory recommendations for benchmark transition

July 9, 2020

Supervisory Issues

The continued reliance of financial markets on LIBOR poses clear risks to global stability. Transition away from LIBOR by end-2021 requires significant commitment, sustained effort from both financial and non-financial institutions across many jurisdictions. The report includes insights on the remaining challenges to transition based on surveys undertaken by FSB, BCBS, International Association of Insurance Supervisors (IAIS). Sets out recommendations for NCAs to support institutions’ and their clients’ progress.

Transition Strategies

Most FSB jurisdictions have a strategy in place to address LIBOR transition, as opposed to only half of the surveyed non-FSB jurisdictions; authorities in LIBOR jurisdictions are relatively more advanced in taking initiatives to facilitate and monitor the transition. Firms in these jurisdictions have shown better progress, although challenges remain. In light of expected cessation of LIBOR after end-2021, authorities should strengthen efforts in facilitating financial and non-financial firms to transition away from LIBOR.

Recommendations

The report includes three sets of recommendations to support the LIBOR transition that should generally be applicable to all jurisdictions with LIBOR exposures. Identification of transition risks and challenges: authorities and standard-setting bodies to issue statements to promote awareness and engage with trade associations and authorities to undertake regular surveys of LIBOR exposure, to request updates. Facilitation of LIBOR transition: authorities to establish a formal transition strategy. Supervisory authorities should consider increasing the intensity of supervisory actions when the preparatory work of individual banks is unsatisfactory. Authorities to promote industry-wide coordination, maintain dialogue on the adoption of the fallback language, consider identifying legislative solutions, where necessary, and exchange information on best practices and challenges. The FSB and the standard-setting bodies will coordinate at the international level to identify key common metrics for monitoring transition progress. LIBOR transition is a G20 priority and the report responds to the G20 request to identify challenges to benchmark transition and to explore ways to address them.

Effectiveness

The report will be delivered to G20 Ministers ahead of their virtual meeting on July 18, 2020.

For more information, visit www.bis.org



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