FSB Statement to encourage final preparations for the USD LIBOR transition

The FSB published a statement concerning the transition away from the USD LIBOR by the end of June 2023.
The FSB emphasises that there has been significant progress made thus far, but notes that it is crucial market participants continue to act in a timely and efficient manner to ensure an orderly transition, minimize operational risks, and support the foundation of a stable financial system going forward.
The FSB highlights the importance of market participants choosing to use robust reference rates in their contracts, as it is critical to anchor the financial system in these robust reference rates reflecting deep, credible, and liquid underlying markets. The FSB encourages market participants to complete the transition of any remaining USD LIBOR-linked contracts now to avoid a pile-up towards end-June 2023 that could introduce operational risks and wider market disruption.
Indeed, the USD LIBOR panel will cease at end-June 2023, immediately after which representative LIBOR rates will no longer be available. The Progress Report on LIBOR and Other Benchmarks Transition Issues: Reaching the finishing line of LIBOR transition and securing robust reference rates for the future the FSB published in December 2022 noted positive progress in transitioning legacy contracts. Over 90% of USD LIBOR exposures are in derivatives, which can be addressed through adherence to the ISDA Protocol and CCP conversion events. The FSB continues to encourage the wide adoption of the ISDA protocol and engagement with CCP conversion processes as critical mechanisms for ensuring the orderly transition of the derivatives market.
To provide a short additional transition period for outstanding legacy contracts not covered by US federal legislation (eventid=19287), the UK FCA will require continued publication of the 1-, 3- and 6-month USD LIBOR settings using a synthetic methodology based on the CME Term SOFR Reference Rate and the ISDA fixed spread adjustment. The FCA intends that publication of these synthetic USD LIBOR settings will cease on 30 September 2024 (eventid=20544), and market participants should not rely on the availability of synthetic LIBOR rates in place of active transition of legacy contracts. Any synthetic LIBOR provides only a short-term, temporary bridge to alternative robust reference rates.
The FSB underlines the importance that market participants should act now to remediate legacy LIBOR contracts, reduce uncertainty upon the end of the USD LIBOR panel, and avoid unintended outcomes and operational risk in the event of a pile-up of outstanding contracts. Therefore, firms with remaining USD LIBOR exposures should take the steps set out in the FSB’s Global Transition Roadmap and maintain the momentum in transitioning to robust reference rates.