Written on: 11 June 2020

11 June 2020 – The FICC Markets Standards Board (FMSB) has today published a Spotlight Review on LIBOR transition with practical case studies to support firms when considering the risks to fairness and effectiveness as the market moves to risk-free rates as more sustainable and representative benchmarks.

As the risks associated with the continued provision of new LIBOR-linked products increase, ‘LIBOR transition: Case studies for navigating conduct risks’ highlights issues for market participants to address when offering new products to clients or changing performance benchmarks.

While the LIBOR transition presents market participants with unique challenges, many of the conduct-related risks, and the means of managing them, are not novel. The paper therefore builds on existing FMSB principles and relevant regulatory expectations, combining the broad expertise of FMSB’s IBOR Transition Working Group participants, and explores ways in which firms can manage the uncertainties and associated risks of the transition through the lens of non-prescriptive good practice observations.

The paper includes four practical case studies which cover cash and derivative products and performance benchmarks. The case studies are relevant across the sell-side, buy-side and corporates.

This paper has been developed by FMSB’s IBOR Transition Working Group which has representation from a wide range of FMSB member firms.

FMSB intends to add to this Spotlight Review during the transition process to include additional case studies focusing on areas of uncertainty that are of particular concern to market participants.

Martin Pluves, CEO of FMSB, said: “Managing the challenges of LIBOR discontinuation and the transition to risk-free rates is a major undertaking for financial market participants the world over. FMSB’s role is to support its broad membership in identifying and managing conduct risks arising from the transition and improving the fairness and effectiveness of global markets. I am delighted to announce the publication of this very practical Spotlight Review, which illuminates challenges from market practitioners’ perspectives and explores approaches for navigating various risks posed by the transition to risk-free rates.”  

Chris Salmon, FMSB Chair of the IBOR Transition Working Group, and Chief Control Officer for Global Markets at HSBC, explained: “With the deadline fast approaching for the discontinuation of the LIBOR interest rate benchmark, FMSB’s practical guidance and case studies will be, now more than ever, relevant to corporates, insurers, asset managers and banks, who are currently managing their transition to alternative risk-free reference rates.”

Tushar Morzaria, Chair of the Sterling Risk-Free Reference Rates Working Group (RFRWG), said: “This Review by the FMSB is a very welcome extension of the work undertaken by the Sterling Risk-Free Reference Rates Working Group. The transition away from LIBOR to more reliable and robust rates has long been a regulatory and market imperative and the FMSB work will fill an important role alongside the technical work already completed by the RFRWG and other bodies internationally.”

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Notes to Editors
1) The Fixed Income, Currencies and Commodities Markets Standards Board (FMSB) is practitioner led, funded by members and operated by the major participants in wholesale markets to improve standards of conduct in wholesale fixed income, currencies and commodities (FICC) markets. It aims to bring transparency to grey areas in the wholesale FICC markets by identifying emerging vulnerabilities, clarifying and documenting practice and agreeing standards to improve conduct and market behaviour. Ensuring that wholesale FICC markets are transparent, fair and effective for all participants is at the heart of FMSB’s mission.

FMSB Standards set out Core Principles and accompanying guidance on the most important aspects of practice where ambiguity risks undermining the transparency, fairness and effectiveness of markets.
FMSB Statements of Good Practice set out clear expectations and guidance on good practice in relation to broader areas of uncertainty in wholesale FICC markets.

FMSB Spotlight Reviews encompass a broad range of publications used by FMSB to illuminate important emerging issues in FICC markets. Drawing on the insight of members and industry experts, they provide a way for FMSB to surface nascent challenges market participants face and may inform topics for future work. Spotlight Reviews will often include references to existing law, regulation and business practices. However, they do not set or define any new precedents or standards of business practice applicable to market participants.

All FMSB publications are available on the FMSB website at fmsb.com/our-publications/.

2) Setting up the FMSB was one of the main recommendations from the Fair and Effective Markets Review (FEMR), which was conducted by HM Treasury, the Bank of England, and the Financial Conduct Authority.

FEMR set FMSB four strategic goals:

  1. Identifying global market vulnerabilities through scanning the horizon for emerging business practice risks.
  2. Developing best market practice through the production of standards and other materials that create a common understanding.
  3. Driving global adherence through ensuring standards are comprehensible and practical.
  4. Developing consistent approaches to market practices through identifying gaps and inconsistencies in existing regulatory standards and working with other standards setting bodies.

3) FMSB has a Standards Board drawn from senior executives from across wholesale markets, from corporate clients, asset managers, sell-side participants and intermediaries and infrastructure providers such as exchanges and custodians. In specialist, focused committees, sub-committees and working groups, industry experts debate issues and develop FMSB Standards and Statements of Good Practice, and undertake Spotlight Reviews that are made available to the global community of FICC market participants and regulatory authorities.

4) FMSB members bring together sell-side investment banks, buy-side asset managers, market infrastructure providers and exchanges, custodians and users of the market such as corporates. This constitution is unique.

The member firms are listed on the FMSB website at fmsb.com/who-we-are/.

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