ASIC has made a call for Australia financial institutions to reveal how they will transition away from LIBOR when it ceases to be used in 2021.
LIBOR (London Interbank Offered Rate) is deeply embedded in global markets and is used by many Australian institutions but the UK Financial Conduct Authority has stated that it will no longer use its power to sustain LIBOR beyond 2021.
The commission together with the Reserve Bank and APRA has written to the CEOs of several major institutions regarding their preparations for the end of LIBOR.
ASIC, APRA and the RBA are seeking assurance that the senior management in these institutions appreciate the impact and risks and are taking appropriate action ahead of the end of 2021.
“ASIC is seeking assurance that the senior management of financial institutions understand the impact and risks of this transition and is taking appropriate action to manage these risks,” said the letter.
The financial regulators expect all institutions to consider the impact of LIBOR transitions including the size and nature of their exposure and to put in place fall-back provisions in contracts that refer to the rate.
“Insufficient preparations for the transition could have a negative impact on the entities’ business, clients and the markets in which they operate,” the letter said.
ASIC commissioner Cathie Armour said that the commission urged all institutions to assess how they will operate when LIBOR is no longer available.
“We encourage all firms that may have exposure to LIBOR to assess the extent of their use of LIBOR and to take timely action to plan for a world in which LIBOR is no longer available,” she said.
RBA deputy governor Guy Debelle said regulators around the world expected institutions to be ready for the transition and users should start the work now if they haven’t already.
“Financial regulators around the world expect institutions using LIBOR to be ready to transition to more robust benchmarks.
“If they haven’t already done so, users need to identify their exposures to LIBOR now and be working on transitioning to alternative rates,” he said.
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