On July 6, 2021, the Financial Stability Board released its latest Progress Report to the G20 on LIBOR Transition Issues. The report finds that, given the extent of risks associated with a failure to prepare adequately for the transition, the onus of action is on market participants. The FSB believes that the tools necessary to complete the transition are currently available, and have been for some time. Over the past several years, market participants have established mechanisms to use compounded risk-free rates (RFRs) not only in derivative markets, where use of RFRs was already common, but also in the cash markets. Firms now have certainty about the cessation timeline, and the fixing of spread adjustments by the International Swaps and Derivatives Association (ISDA) creates a clear economic link between LIBOR and selected RFRs, providing clarity for market participants to engage in discussions about active transition of LIBOR referencing contracts that expire after end-2021.

The FSB urges market participants to cease new use of LIBOR in all currencies as soon as practicable, respecting national working group (NWG) timelines and supervisory guidance where applicable, and in any case no later than the end of 2021. With only a few months left until end-2021, all financial and non-financial firms across the globe must ensure that they follow the necessary steps to avoid disruption to the performance of their contracts, acting with urgency. A smooth and orderly transition requires, at a minimum, steps to stop issuance of new products linked to LIBOR and efforts to transition away from LIBOR in legacy contracts wherever feasible in accordance with the FSB’s recently updated Global Transition Roadmap for LIBOR.

In the report, the FSB states that a particular area of concern continues to be the loan markets, with much new lending still linked to LIBOR, increasing the stock of contracts affected by its discontinuation. The FSB emphasized that “the continuation of major USD LIBOR panels through 30 June 2023 is not meant to support new USD LIBOR activity.” (emphasis added.)

The report concludes with specific action steps for regulators and market participants, as well as an analysis of data from a November 2020 survey regarding supervisory issues.

With fewer than 6 months remaining until 31 December 2021, the FSB stated that LIBOR transition is a “significant priority,” and that active engagement by both private and public sector market participants is “critical,” and international cooperation, coordination, and consistency is “crucial.”