{"id":172551,"date":"2021-04-21T09:14:24","date_gmt":"2021-04-21T09:14:24","guid":{"rendered":"https:\/\/wordpress-693215-2610341.cloudwaysapps.com\/index.php\/2021\/04\/21\/fmsb-publishes-spotlight-review-on-libor-back-book-transition\/"},"modified":"2021-04-21T09:14:24","modified_gmt":"2021-04-21T09:14:24","slug":"fmsb-publishes-spotlight-review-on-libor-back-book-transition","status":"publish","type":"post","link":"https:\/\/theotcspace.com\/fmsb-publishes-spotlight-review-on-libor-back-book-transition\/","title":{"rendered":"FMSB publishes Spotlight Review on LIBOR back book transition"},"content":{"rendered":"

The FICC Markets Standards Board (“FMSB”) has published a new Spotlight Review on LIBOR transition, looking at how market participants may manage potential conduct risks arising in back book transition.<\/p>\n

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The FICC Markets Standards Board (“FMSB”) has published a new Spotlight Review<\/a> on LIBOR back book transition, looking at how market participants may manage potential conduct risks arising in back book transition.<\/p>\n

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This Spotlight Review aims to provide practical guidance for market participants and builds on a previous Spotlight Review which focused on moving new business off LIBOR. It has been developed by FMSB’s LIBOR Transition Working Group, which has representation from a wide range of FMSB member firms.<\/p>\n

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Back book transition covers long-dated derivative contracts and the need for parties to them to take steps before the end of 2021 to remove their remaining reliance on LIBOR benchmarks. Until July 2017 when it became clear that LIBOR would end, few contracts across the cash and derivatives markets envisaged a permanent cessation of LIBOR settings. Parties to long-dated derivatives contracts as well as borrowers and lenders are therefore exposed to uncertainty on LIBOR cessation if steps are not taken before the end of 2021. For these older legacy contracts, there are four broad transition or fallback options depending on the product and contract in question:<\/p>\n

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  1. Proactively transition LIBOR-based contracts to alternative benchmark rates in advance of LIBOR cessation<\/li>\n
  2. Proactively amend legacy fallback language<\/li>\n
  3. Rely on legacy fallback terms<\/li>\n
  4. Rely on a legislative solution for tough legacy contracts<\/li>\n<\/ol>\n

     <\/p>\n

    This Spotlight Review focuses on the first of these options given the benefits of actively converting contracts to another rate before the end of 2021. In particular, taking an active approach to transition enables market participants to take a degree of control over the impact of the transition on their contracts, reduce uncertainty and operational risk associated with waiting for LIBOR cessation and helps promote an orderly transition.<\/p>\n

    Nonetheless, as with the other transition and fallback options, proactively transitioning away from LIBOR-based contracts to alternative benchmark rates in advance of LIBOR cessation gives rise to a number of complexities which firms will need to manage in order to promote a fair and effective transition. In particular:<\/p>\n