The Road Ahead: The LIBOR transition effort has faced many challenges, but it has remained broadly on course despite the global pandemic introducing new economic priorities and pressures. Financial institutions globally were diligently working towards a complete transition from LIBOR by December 31, 2021, until LIBOR Transition efforts were readjusted.
On November 30, 2020 ICE Benchmark Administration Limited (IBA) released an announcement, subsequently confirmed by the FCA and US regulators ceasing the publication of USD LIBOR as follows:
- One week and two months settings immediately following the LIBOR publication on December 31, 2021.
- All other settings (overnight and one, three, six, and twelve months) immediately following the LIBOR publication on June 30, 2023.
A major consequence of the phased approach will be on multi-currency contracts, mixing USD and other major LIBOR currencies, necessitating remediation of multicurrency contracts in 2021. The extension also allowed market providers to advance credit-sensitive rate alternatives to LIBOR (Bloomberg and ICE), or a credit-sensitive adjustment (Markit) any of which can be used to adjust SOFR, a long-stated need of certain market segments. Now, as these alternatives begin to emerge, the “protective value” of these alternatives has shifted to how they will be published (adjustments or Credit Sensitive SOFR), and the operational and contractual implications near term. As we prepare for 2021, the main bodies of work remain consistent but require refocusing and alignment to industry and market timelines.
A structured approach to this assessment, ensuring people, process, and technology are considered along the entire process lifecycle, will result in a seamless transition that drives trust across all stakeholders -both internally and externally. Learn more in our latest LIBOR paper.