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FINMA unveils LIBOR timetable

Chris Hamblin, Editor, London, 18 December 2020


The Swiss Financial Market Supervisory Authority has published a timetable for Switzerland's abandonment of the London Interbank Offered Rate. FINMA is recommending financial institutions to follow it in order to be as well-prepared as possible for a discontinuation of LIBOR in various currencies.

On 18 November the UK’s Financial Conduct Authority (FCA) and the ICE Benchmark Administration published information about the discontinuation of LIBOR in Swiss francs, euros, British pounds and yen. On 30 November they published information on the discontinuation of LIBOR in US dollars. FINMA is aiming to complete the process at the end of 2021.

FINMA's dates have been 'adapted' from an agenda that the Financial Stability Board (FSB) published on 16 October. The regulator proposes the following.

By 25 January 2021 - The signing of IDSA [the International Swaps and Derivatives Association] 2020 IBOR Fallbacks Protocol. The affected supervised institutions should have signed this by then.

By 31 January 2021 - No new “tough legacy.” Across all product types, there should be no new transactions based on Swiss Franc or € LIBOR that mature after end-2021 and do not contain robust fallback clauses. Where possible, the same objective should also be aimed at for new transactions based on GBP, JPY or USD LIBOR.

By 31 January 2021 - Readiness to grant loans based on alternative reference rates or ARRs.

By 31 March 2021 - Plans for the reduction of “tough legacy.” Having fully evaluated their inventories of existing SFr and € LIBOR contracts, firms should have determined which contracts and what volume are potentially “tough legacy” as they mature after 2021 and do not contain robust fallback clauses. They should have formulated detailed project plans with steps to be taken and progress monitoring in order to reduce this volume of “tough legacy” contracts to a minimum by the end of 2021. To achieve this FINMA recommends that they should make at least initial contact with the counterparties of potential “tough legacy” contracts by 31 March 2021 at the latest, so that the process of renegotiation can begin. This ought to apply for all types of product, not just loans and derivatives. Other solutions (such as a premature termination or sale) are also possible.

This objective also applies for the 1W and 2M tenors of the US$ LIBOR as well as those tenors of the £ and Yen LIBOR for which the FCA has indicated that there will be no synthetic continuation.

In relation to the remaining tenors of LIBOR in £, Yen and US$, firms should nevertheless consider agreeing with their counterparties on a conversion of those contracts to ARRs.

By 30 June 2021 - System and process changes should be set.

By 30 June 2021 - Mitigation of risks for remaining “tough legacy.” For all contracts for which no solution is forthcoming, a risk assessment should be available per contract or product and specific measures should betaken to mitigate these risks. Particularly relevant questions include how likely a legal dispute is, how the case might unfold in court and what consequences there are for the bank’s internal valuation of contracts.

By 30 June 2021 - New contracts in general based on ARR. In general, the affected supervised institutions should only use ARR in new SFr, €, £, Yen and US$ contracts.

By 31 December 2021 - Full operational readiness. All relevant systems and processes should already be able to function without relying on LIBOR.

By 31 December 2021 - All new contracts based on ARR: all new transactions with variable interest in SFr, €, £, Yen and US$ should bebased on ARR. 

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