CFPB Joins Other Financial Regulatory Agencies in Issuing Statement on Completing the LIBOR Transition
- Source: federalreserve.gov
Treliant helps global banking institutions manage the transition away from LIBOR settings, which ended for Sterling, Swiss franc, Japanese yen, and euro on December 31, 2021. The transition continues for U.S. dollar LIBOR to its replacement rate Secured Overnight Financing Rate (SOFR) ahead of its cessation in June 2023. Our team has deep experience helping our global banking clients prepare for and manage the complexity of regulatory change.
On the April 26, 2023, five federal institution regulatory agencies[i] in conjunction with the state bank and state credit union regulators jointly issued a statement to remind the industry that the USD LIBOR panels will end on June 30, 2023. The statement reaffirms the importance of completing the transition of the remaining LIBOR contracts as soon as possible, noting that failure on doing so may result in harm to the financial stability and create litigation, operational and consumer protection risks. Additionally, the statement outlines that agencies are expecting institutions to complete the transition of remaining USD LIBOR exposure as soon as possible, and no later than the June 30, 2023.
The statement is in line with the regulation published by the FED in January 2023 that implemented the LIBOR Act. Reminding the industry that such regulation was enacted by the US Congress to facilitate the transition, by providing a bespoke solution for contracts that reference USD LIBOR and will mature after the LIBOR cessation date but lack adequate fallback provisions or practicable replacement benchmarks.
Finally, the statement notes that institutions should continue to conduct the necessary due diligence to ensure that the alternative rates selected is appropriate for the institutions products, risk profile, risk management capabilities, customer needs and operational capabilities. This due diligence should encompass understanding how the chosen rate is constructed and awareness of any of the fragilities associated with the rate and the markets that underlie it.
[i] The federal financial institution regulatory agencies are the Board of Governors of the Federal Reserve System (Board), the Consumer Financial Protection Bureau (CFPB), the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), and the Office of the Comptroller of the Currency (OCC).
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