U.S. derivatives regulators are providing firms with relief to facilitate the shift to alternative benchmarks as global financial markets prepare for the transition away from LIBOR.
Three divisions of the U.S. Commodity Futures Trading Commission (CFTC) have issued no-action letters that set out conditions for swap dealers and other derivatives firms to qualify for relief to replace provisions that reference LIBOR with other benchmarks.
The relief covers trade execution, swap clearing, registration requirements, margin rules and business conduct requirements, among other provisions that may be impacted by the replacement of LIBOR.
“Next year is going to be crucial for the transition away from LIBOR. Firms that fail to do so will put themselves and the global financial system at risk,” CFTC chairman Heath Tarbert said in a statement.
Tarbert added that the CFTC is one of the first regulators to provide firms with LIBOR-transition relief.
“The CFTC remains committed to working with market participants and our fellow regulators on this critical issue,” he said.
FSB calls for action on LIBOR transition
Separately, the Financial Stability Board (FSB) published a report on benchmark reform that calls on policymakers and the industry to put forth “significant and sustained efforts” to transition away from LIBOR by the end of 2021.
“There has been good progress in many derivatives and securities markets, but transition in lending markets has been slower, and needs to accelerate,” the FSB said.
The FSB also said that firms should expect increasing scrutiny of their transition efforts over the next couple of years.
“It is essential that both firms and national authorities around the world take steps now to ensure a smooth transition,” said Andrew Bailey and John Williams, co-chairs of the FSB steering group, in a joint statement.
“As a matter of priority, authorities should discuss with financial institutions, and financial institutions with their clients, the transition process and agree on the steps needed,” they added.