Financial institutions need ensure they are preparing to transition away from the London Interbank Offered Rate (LIBOR) to other benchmarks, with the Australian Securities and Investments Commission (ASIC) writing to the chief executives of several major institutions to ensure they understand the impact and risk of the change.
The LIBOR is used by many Australian financial companies in their contracts and businesses processes but would not be useable beyond 2021, following an announcement from the UK Financial Conduct Authority that it would not use its powers to sustain the rate beyond then.
While the letter broadly urged institutions relying on the LIBOR to consider the impact of the transition on their businesses, it also highlighted specific actions senior management should take. These included having awareness of the size and nature of companies’ exposures to LIBOR, putting in place robust fall-back provisions in contracts referencing the LIBOR, and taking action to transition to alternative rates.
ASIC Commissioner, Cathie Armour, who, along with the regulator’s executive director, markets, Greg Yanco, authored the letter, said: “‘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”.
Both the Australian Prudential Regulation Authority (APRA) and the Reserve Bank of Australia (RBA) put their strong support behind the letter, with RBA deputy Governor, Guy Debelle, warning that financial regulators worldwide expected institutions using the LIBOR to be ready to transition.