ASIC urges financial institutions to plan for end of LIBOR
ASIC has advised major Australian financial institutions to prepare to transition away from LIBOR to alternative benchmarks, ahead of the end of 2021.
The Australian Securities and Investments Commission (ASIC) has written to the CEOs of several major Australian financial institutions regarding their preparations for the end of LIBOR.
LIBOR (London Inter-bank Offered Rate) is deeply embedded in financial markets globally and is used by many Australian financial institutions in their contracts and business processes. The UK Financial Conduct Authority (FCA) has stated that it will no longer use its powers to sustain LIBOR beyond 2021.
ASIC, APRA and RBA are seeking assurance that the senior management of Australian financial institutions fully appreciate the impact and risks and are taking appropriate action ahead of the end of 2021.
More broadly, the financial regulators expect all institutions that currently rely on LIBOR to consider the impact of LIBOR transition on their business.
"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," ASIC commissioner Cathie Armour said.
Australian entities have varying degrees of exposure to LIBOR through their derivatives, loans and investment holdings.
The transition away from LIBOR may have significant implications on the entities’ risk management, operational processes and IT infrastructure, ASIC warned.
In addition to participating in market-led initiatives to facilitate the transition, ASIC expects major Australian financial institutions to undertake a comprehensive risk assessment of the potential impacts associated with LIBOR transition.