What is changing?
One of the consequences mandated by the Financial Stability Board (FSB) in 2014 following the financial crisis was to initiate the replacement of benchmark interest rates such as London Interbank Offered Rate (LIBOR) and other interbank offered rates (‘IBORs’) by robust and reliable alternative replacement rates, a process hereinafter referred to as “IBOR Reform”. Consequently, some interest rate benchmarks will perform differently to the way that they do currently or some benchmarks, such as LIBOR, will disappear. Some uncertainties remain, but the roadmap and specific deadlines to replacement are becoming clearer.
This page focuses on the implications of the IBOR reform to your business and actions that you may need to take in order to be prepared for the biggest reform in the financial markets within last 40 years.
Cessation of LIBOR benchmarks
Given that LIBOR is widely used in various products and the volume of transactions referencing LIBOR is considerably large, the discontinuation may have a significant impact on both existing and future transactions, particularly in loans, bonds and derivatives.
On March 5, 2021 the Financial Conduct Authority (FCA) formally announced the dates of the future cessation or loss of representativeness of all 35 LIBOR settings currently published by ICE Benchmark Administration Limited (IBA).
The cessation of LIBOR settings is fragmented. All GBP, EUR, CHF, JPY, and some lesser-used USD LIBOR tenors (1W and 2M), will cease publication after 31 December 2021. The remaining USD LIBOR tenors will cease publication after 30 June 2023. Some GBP, JPY, and USD tenors will be non-representative after their respective cessation dates, allowing the FCA to potentially extend publication of these rates on a “synthetic” basis for use in “tough legacy” contracts only.
Please be advised that this page contains general information. It does not contain recommendations of any kind. You can always contact your regular contact person in Danske Bank if you wish to receive individual information about the IBOR Reform and how it impacts you.