Regulators and industry are taking further steps to transition away from LIBOR, which is expected to
cease after the end of 2021. In particular, on Friday 9 October 2020 the International Swaps and
Derivatives Association (ISDA) announced that it will launch the 2020 IBOR Fallbacks Protocol and
associated Supplement to the 2006 ISDA Definitions on 23 October 2020. These are needed to
implement robust fall-back provisions for derivative contracts referencing key interbank offered rates
(IBORs), including the London Interbank Offered Rate (LIBOR). The protocol and supplement are informed
by extensive consultation with industry, including in Australia.
While the regulators welcome the progress of LIBOR transition in Australia to date,
continued focus and effort are necessary. ASIC, with the support of the Australian
Prudential Regulation Authority (APRA) and the Reserve Bank of Australia (RBA), strongly
urges Australian institutions to adhere to the ISDA Protocol and Supplement. The
Financial Stability Board has also released a statement encouraging broad and timely
adherence to the protocol.
Adherence is an important step towards the orderly transition of LIBOR-referenced derivatives
contracts. It is critical to the mitigation of both individual entity risks and systemic risks
associated with the discontinuation of LIBOR.
All financial and corporate institutions that use derivatives contracts referencing LIBOR are strongly
encouraged to review and adhere to the protocol by its effective date of 25 January 2021.
ASIC Commissioner Cathie Armour said, ‘The publication of the ISDA IBOR Fallbacks
Protocol and Supplement will be an important step towards the orderly transition of
billions of dollars’ worth of financial contracts in the derivatives market. Industry
wide adoption will significantly reduce the risks of contractual disputes, litigation
and frustration by creating a consistent approach to fallback rates when LIBOR comes to
an end. We strongly encourage institutions in Australia to adhere to the Protocol.’
RBA Assistant Governor (Financial Markets) Christopher Kent said, ‘Timely adherence to the new
ISDA Protocol is important for all users of LIBOR in derivatives contracts. Having these robust
fallbacks in place for legacy contracts is a vital step in the transition away from LIBOR.’