Regulators urge financial institutions to plan for LIBOR transition

The Australian Securities and Investments Commission (ASIC) has written to the CEOs of several major Australian financial institutions regarding their preparations for the end of LIBOR. This initiative is strongly supported by the Australian Prudential Regulation Authority (APRA) and the Reserve Bank of Australia (RBA).

LIBOR (London Interbank Offered Rate) is deeply embedded in financial markets globally and is used by many Australian financial institutions in their contracts and business processes. The UK Financial Conduct Authority (FCA) has stated that it will no longer use its powers to sustain LIBOR beyond 2021.

The purpose of the letter is to better understand how major Australian financial institutions are preparing to transition away from LIBOR to alternative benchmarks. ASIC, APRA and the RBA are seeking assurance that the senior management in these institutions fully appreciates the impact and risks and is taking appropriate action ahead of the end of 2021.

More broadly, the financial regulators expect all institutions that currently rely on LIBOR to consider the impact of LIBOR transition on their business. In particular, users of LIBOR should:

• be aware of the size and nature of their exposures to LIBOR;
• put in place robust fall-back provisions in contracts referencing LIBOR; and
• be taking action to transition to alternative rates.

ASIC Commissioner Cathie Armour said: "We encourage all firms that may have exposure to LIBOR to assess the extent of their use of LIBOR and to take timely action to plan for a world in which LIBOR is no longer available."

RBA Deputy Governor Guy Debelle said: "Financial regulators around the world expect institutions using LIBOR to be ready to transition to more robust benchmarks. If they haven't already done so, users need to identify their exposures to LIBOR now and be working on transitioning to alternative rates."

A copy of the letter to assist readers in considering how the transition from LIBOR may impact them can be found below:

Editor’s note

Cathie Armour and Guy Debelle have both recently spoken publicly on this matter. Please view Ms Armour’s comments here and Mr Debelle’s comments here.