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Global Financial Markets to Transition from LIBOR after 31 December 2021

Global Financial Markets to Transition from LIBOR after 31 December 2021

The NBU hereby informs financial market participants that after 31 December 2021, publication of most quotations of LIBOR interest rate benchmarks will cease due to the gradual global transition away from the benchmarks that are based on reported data and are no longer representative. According to ICE Benchmark Administration Limited (IBA), it plans to stop publishing USD LIBOR – Overnight and 1, 3, 6, and 12 Months – after 30 June 2023.

As a result, market participants will no longer be able to enter into new and maintain existing agreements referencing LIBOR, as the availability of these rates will cease permanently.

To ensure a smooth transition to new benchmarks and mitigate the associated financial risks to financial institutions and financial service consumers, the NBU recommends that Ukrainian banks take the following measures:

  • inform clients about the transition from LIBOR and the need to reduce the associated risks
  • refrain from concluding agreements and using financial instruments that reference LIBOR
  • identify in advance all existing exposures that directly or indirectly depend on LIBOR
  • switch to new benchmarks by 31 December 2021
  • agree a fallback to be applied to LIBOR-linked products and instruments after 31 December 2021
  • take into account the transition to new benchmarks in the risk management framework

These recommendations also apply to nonbank financial institutions that directly or indirectly use LIBOR in their activities.

The list of recommended benchmarks that will replace LIBOR, as well as more detailed recommendations on the transition process has been published on the official websites of central banks, including the Federal Reserve System, the European Central Bank, and international institutions.

For reference

Interest rate benchmarks play an important role in financial markets. These benchmarks approximate the cost of borrowing, serve as reference rates for hedging instruments, and are widely used in financial instruments valuation.

Reliability of interest rate benchmarks is key to global financial stability. Principles for reliable benchmarks are laid out in IOSCO’s report Principles for Financial Benchmarks.

The cases of attempted market manipulation with benchmarks that are based on reported data (rather than on actual contracts), together with the significant decline in the liquidity of the underlying market, have undermined confidence in existing IBOR benchmarks (LIBOR, EURIBOR, etc.) and prompted financial regulators to initiate the transition to alternative benchmarks. Specifically, the Financial Stability Board in 2014 released the report Reforming Major Interest Rate Benchmarks, which laid the groundwork for further steps in this process.

 

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