LIBOR transition
Background
The London Interbank Offered Rate (LIBOR) has come under scrutiny from global regulators following the 2008-2009 Global Financial Crisis, due to inherent problems with its construction as well as misconduct risks. The UK’s Financial Conduct Authority (FCA) has subsequently determined that LIBOR must be replaced.
On 5th March 2021, the FCA formally announced the cessation of LIBOR. The cessation timelines for the respective LIBOR settings are as follows:
| LIBOR Currency | LIBOR Settings | Cessation Date | Proposed Replacement | Administered By | Working Groups |
USD |
1-week, 2-month |
December 31, 2021 |
Secured overnight funding rate SOFR |
Federal Reserve Bank of New York |
Alternative Reference Rates Committee (ARRC) |
USD |
All other settings (i.e., Overnight/ Spot Next, 1-month, 3-month, 6-month, and 12-month) |
December 31, 2021 |
Secured overnight funding rate SOFR |
Federal Reserve Bank of New York |
Alternative Reference Rates Committee (ARRC) |
GBP |
All settings |
December 31, 2021 |
Sterling overnight index average SONIA |
Bank of England |
Working Group on Sterling Risk-Free Reference Rates |
EUR |
All settings |
December 31, 2021 |
Euro short-term rate €STR |
The European Central Bank |
Working Group on Euro Risk-Free Rates |
CHF |
All settings |
December 31, 2021 |
Swiss average rate overnight SARON |
Swiss Infrastructure and Exchange (SIX) |
The National Working Groupon Swiss Franc Reference Rates |
JPY |
All settings |
December 31, 2021 |
Tokyo overnight average rate TONAR |
Bank of Japan |
Cross-Industry Committee on Japanese Yen Interest Rate Benchmarks |
The Euro Interbank Offered Rate (EURIBOR) is not being phased out as it was reformed with a hybrid computation methodology that incorporates executed transactions. This reform was authorised by the European Union Benchmark Regulation (BMR) and is expected to continue in the foreseeable future.
Financial institutions have been encouraged to cease executing new contracts referenced to LIBORs as soon as realistically possible and by no later than 31 December 2021. Any new contracts executed before this date should either utilise a reference rate other than LIBOR or have robust fallback language that includes a clearly defined alternative reference rate after LIBOR’s discontinuation.
AFC’S Approach to LIBOR transition
We have conducted an impact analysis of the LIBOR transition on our portfolio and have taken the following actions to ensure a smooth transition:
- We have quantified the Corporation’s exposure to LIBOR per reference rate and product class to inform our transition strategy.
- We are assessing the potential changes in terms of technology and systems, contracts, and legal agreements, differentiated products and processes.
- We will continue to assess the impact on pricing to ensure that we remain competitive.
- We are compiling communications and information packs to keep our stakeholders informed of the pending changes and the potential impact on them.
- In addition, we are collaborating with other Multilateral Development Finance Institutions to keep abreast of market developments and develop best practices to ease the transition process.
In the meantime, you may wish to seek professional advice from your legal, tax, accounting or financial advisors on the possible implications of this transition.
Please contact us if you have any questions. We will periodically update this page and provide communication relating to the LIBOR Transition. In the meantime, if you require any further information not covered here, please contact AFC’s Working Group on LIBOR Transition at libor-euribortwg@africafc.org
Other general information
The ALTERNATIVE REFERENCE RATES COMMITTEE (ARRC) is a group of private-market participants convened by the Federal Reserve Board and the New York Fed to help ensure a successful transition from U.S. dollar (USD) LIBOR to the Secured Overnight Financing Rate (SOFR). More information on the ARRC, an overview of SOFR and the transition status can be found here.
The International Swaps and Derivatives Association (ISDA), Loan Market Association (LMA), the Financial Stability Board (FSB) and the Financial Conduct Authority (FCA) are some of the industry bodies that are considering these issues and have published information on the ongoing transition. This can be accessed via the links below:
