Australian Regulators Urge Adherence to ISDA IBOR Fallbacks

The ISDA IBOR fallbacks protocol and supplement were informed by extensive consultation with industry, including in Australia.

APRA (Australian Prudential Regulation Authority), ASIC (Australian Securities and Investments Commission) and the RBA (Reserve Bank of Australia) have issued a statement urging Australian institutions to adhere to the ISDA IBOR Fallbacks Protocol and Supplement as part of the transition away from LIBOR.

Last week, ISDA announced that it will launch the 2020 IBOR Fallbacks Protocol and associated Supplement to the 2006 ISDA Definitions on 23 October 2020.

The protocol and supplement are needed to implement robust fallback provisions for derivative contracts referencing key IBORs, including LIBOR, and were informed by extensive consultation with industry, including in Australia, the statement said.

“While the regulators welcome the progress of LIBOR transition in Australia to date, continued focus and effort are necessary.”

Urges Australian institutions to adhere to the ISDA Protocol and Supplement, the Australian regulators also acknowledge a statement from the FSB (Financial Stability Board) encouraging broad and timely adherence.

“Adherence is an important step towards the orderly transition of LIBOR-referenced derivatives contracts. It is critical to the mitigation of both individual entity risks and systemic risks associated with the discontinuation of LIBOR.”

All financial and corporate institutions that use derivatives contracts referencing LIBOR are asked to review and adhere to the protocol by its effective date of 25 January 2021.

‘The publication of the ISDA IBOR Fallbacks Protocol and Supplement will be an important step towards the orderly transition of billions of dollars’ worth of financial contracts in the derivatives market,” said ASIC commissioner Cathie Armour.

“Industry wide adoption will significantly reduce the risks of contractual disputes, litigation and frustration by creating a consistent approach to fallback rates when LIBOR comes to an end.”

Hong Kong’s TMA (Treasury Markets Association) also issued a statement welcoming ISDA’s announcement and encouraging its Members to adhere to the supplement and protocol.