Reform of interest rate benchmarks—what is the state of play?

Reform of interest rate benchmarks—what is the state of play?

On 14 November 2018, the Financial Stability Board (FSB) issued a report on progress in reforming major interest rate benchmarks. This analysis summarises the key points in the report, looking in particular at the current position in relation to LIBOR and Euribor.

What is the background to the FSB report?

In 2014, the FSB issued a report entitled Reforming major interest rate benchmarks (the 2014 report). This contained recommendations for strengthening existing benchmarks for key Interbank offered rates (IBORs) and for the development and adoption of risk-free reference rates (RFRs) where appropriate.

In addition, in 2016, the FSB launched an additional stream of work to improve contractual robustness to cater for the discontinuation of interest rate benchmarks with the least disruption. The report issued on 14 November 2018 (the FSB report), sets out progress on the recommendations in the 2014 report and the workstream as regards contractual robustness, and provides a useful snapshot of the current state of play across the various major interest rate benchmarks.

What does the FSB report cover?

The first section of the FSB report sets out international coordination of the work on benchmark reform and key cross-jurisdictional themes. In particular it highlights areas where the approach taken to different IBORs is diverging. For example, while it is envisaged that LIBOR will be phased out by the end of 2021, other jurisdictions (for example Australia and Canada) are taking the view that a wholesale transition to RFRs is unnecessary. Many jurisdictions are therefore supporting a multiple-rate approach. As a result, work to transition to RFRs in LIBOR currencies is on the whole more advanced compared to most other IBORs.

The next section of the FSB report focuses on moves to base the IBOR benchmarks more firmly in transaction data and other developments. It discusses developments relating to LIBOR, EURIBOR, TIBOR, and to

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About the author:

Miranda is a solicitor specialising in leveraged and acquisition finance. She trained at Hogan Lovells International LLP and qualified into the international banking and finance team. During her time at Hogan Lovells she worked on a variety of domestic and cross-border transactions, acting for both borrowers and lenders. She also experienced secondments to Barclays Bank PLC and Kaupthing Bank hf.