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The U.K. Financial Conduct Authority (FCA), the supervisor of ICE Benchmark Administration (the administrator of LIBOR), announced in July, 2017 that it will no longer compel panel banks to submit rates required to calculate LIBOR after December 31, 2021. While the FCA announcement pertained to LIBOR specifically, an industry-wide response triggered an examination more broadly of other inter-bank offered rates (IBORs).

RBC has established a global program in response to the transition and is committed to supporting the industry transition towards alternative risk-free rates. We encourage you to raise awareness of these reforms within your organization, stay up to date on the latest developments and seek professional advice on the potential impact of these reforms on your organization.

For more information, we invite you to review the additional content of this page as well as to visit the relevant webpage(s) of RBC’s Lines of Business. Please contact your RBC representative or relationship manager for additional information.

News

March 31, 2021
The Working Group on Sterling Risk Free Reference Rates’ target milestone date to cease issuance of new GBP LIBOR referencing loan products, bonds, securitizations and linear derivatives (except for risk management of existing exposure) maturing after 2021
March 5, 2021
The Financial Conduct Authority (“FCA”), the regulator of the administrator of LIBOR, made an announcement (PDF) regarding the future cessation or loss of representativeness of all 35 LIBOR settings.
January 25, 2021
ISDA IBOR Fallbacks Protocol and IBOR Fallbacks Supplement to the 2006 ISDA Definitions took effect.

RFR

The table below shows the approach taken for IBORs for the principal currencies in which RBC products are denominated:

IBORs Principal Currencies Table Example
Impacted Rate Reform/discontinuation/non-representativeness Currency RFR Multiple rate approach
LIBOR (opens to external site) On March 5, 2021, the FCA announced the following1:
  • Publication of the following LIBOR settings will permanently cease immediately after 31 December 2021:
    • all 7 euro LIBOR settings
    • all 7 Swiss franc LIBOR settings
    • the spot next, 1-week, 2-month and 12-month Japanese yen LIBOR settings
    • the overnight, 1-week, 2-month and 12-month sterling LIBOR settings
    • the 1-week and 2-month US dollar LIBOR settings
  • Publication of the overnight and 12-month US dollar LIBOR settings will cease immediately after 30 June 2023
  • Immediately after 31 December 2021, the 1-month, 3-month and 6-month Japanese yen LIBOR settings and 1-month, 3-month and 6-month sterling LIBOR settings will no longer be representative of the underlying market and economic reality that they are intended to measure.
  • Immediately after 30 June 2023, the 1-month, 3-month and 6-month USD LIBOR settings will no longer be representative of the underlying market and economic reality that they are intended to measure.
GBP SONIA (opens to external site) No
CHF SARON (opens to external site) No
JPY TONA Yes, consisting of TONA and JPY TIBOR
USD SOFR (opens to external site) No
EUR €STR (opens to external site) No
EURIBOR (opens to external site) Reforms to the methodology underpinning EURIBOR to ensure compliance with regulatory requirements have been implemented.

EURIBOR (as revised) is currently expected to continue2.
EUR €STR (opens to external site) Yes, consisting of EURIBOR and €STR
EONIA (opens to external site) As of October 2, 2019, EONIA methodology has been recalibrated to become the sum of €STR plus a fixed spread of 8.5 basis points.

EONIA is expected to be discontinued on 3 January 20223.
EUR €STR (opens to external site) No
BBSW (opens to external site) The calculation of BBSW has since 21 May 2018 used a reformed VWAP methodology, and it is expected that BBSW (as revised) will continue4. AUD RBA (opens to external site)
Cash Rate
Yes, consisting of BBSW and RBA Cash Rate
CDOR (opens to external site) 6-month and 12-month CDOR tenors will cease to be calculated and published from May 17, 2021 onwards. It is expected that 1-month, 2-month and 3-month CDOR tenors will continue to be published5.

Changes have been made to enhance the methodology underlying CORRA6.
CAD Enhanced CORRA (opens to external site) Yes, consisting of CDOR and CORRA

Footnotes

FAQs

A number of interbank offered rates (“IBORs”) are being reformed to make them more robust and reliable or, in some cases, are being discontinued. Where the IBORs are being reformed they are expected to perform differently from the way they currently perform.
Regulatory authorities and public and private sector working groups in several jurisdictions have strongly encouraged the identification and use of alternative “risk-free rates” (“RFRs”) to replace (or, in some cases, to be used alongside) certain IBORs. These working groups have also published recommendations which consider how to support a transition to, and the development of new products referencing, these RFRs.
The U.K. Financial Conduct Authority (FCA), the supervisor of ICE Benchmark Administration (the administrator of LIBOR), announced in July, 2017 that it will no longer compel panel banks to submit rates required to calculate LIBOR after December 31, 2021. While the FCA announcement pertained to LIBOR specifically, an industry-wide response triggered an examination more broadly of other inter-bank offered rates (IBORs).
The London Interbank Offered Rate (LIBOR) is currently the world’s most widely used interbank offered rate for short-term interest rates. LIBOR benchmarks are based on a daily quotation of rates by a number of leading banks regarding what it would cost the submitting bank to borrow unsecured funds from another bank. The administrator of LIBOR (the ICE Benchmark Administration) produces daily rates for five different currencies: USD, GBP, EUR, JPY and CHF, each of which are provided for various terms ranging from overnight lending to a twelve month term. LIBOR is published daily and referenced in a wide variety of contracts including loans, bonds, derivatives and other floating rate instruments.
RFRs are overnight interest rate benchmarks which are perceived to (i) in some cases, be more representative and reliable than an IBOR and (ii) be more appropriate for use in certain products than an IBOR.
RFRs are overnight rates based on actual transactions, while IBORs are quoted term rates that may rely, in part, on expert judgment.
No. For some currencies, a “multiple rate” approach is being adopted, which means that the IBOR for the relevant currency will continue alongside the RFR. For other currencies, it is likely that the IBOR will cease to be provided and so the principal interest rate will be the RFR.
Yes.
The Bank of Canada has determined that for now, Canada will benefit from the use of both CDOR and enhanced CORRA as a nearly risk-free rate. While utilizing both CDOR and enhanced CORRA is the current position, as the global economies transition towards alternative risk-free rates and as anticipated liquidity in Canada flows towards CORRA and away from CDOR, we would suggest creating an inventory of CDOR-based positions and associated documentation to understand your organization’s exposure to CDOR.
You should also be aware of developments set out below:

CDOR:

On November 12, 2020, Refinitiv Benchmark Services (UK) Limited (“RBSL”), the administrator for CDOR, announced (PDF) the changes below following a public consultation:
From May 17, 2021 onwards, the calculation and publication of 6-month and 12-month CDOR tenors will cease; and
The last day for the publication of 6-month and 12-month CDOR tenors will be May 14, 2021.
The 1-month, 2-month and 3-month CDOR tenors will not be affected by this change.

CORRA:

The Bank of Canada took over the responsibility for the calculation and publication of CORRA on June 15, 2020. The announcement includes a new calculation methodology (opens to another site) for CORRA, sometimes referred to as enhanced CORRA. The rate for a given day will be available on the Bank of Canada CORRA webpage at approximately 09:00 ET on the following business day.

A mismatch may arise if a derivative transaction is used to hedge a loan (or other products such as a bond) and does not deal with the discontinuation of the IBOR or the calculation of RFRs in the same way. Any mismatches may also impact the accounting treatment (such as hedge accounting) and tax treatment. Parties should familiarize themselves with how IBORs are defined in their product documentation and how the related fallbacks apply to the cash product and any derivative transaction intended to serve as a hedge and take professional advice as to the potential impact and risks associated with the discontinuation of these IBORs.
RBC has established a global program and is, amongst other things, (i) identifying the products which reference affected interest rates, (ii) engaging with clients on the consequences of the reform and/or discontinuation, (iii) considering how different products may be affected and (iv) considering steps to transition to RFRs (where relevant).

Industry Timeline

Set out below are some important industry milestones for 2021. This list is not exhaustive, and we encourage you to stay up to date on the transition and raise awareness of it within your organization.

Industry Timeline Table
Date Event Jurisdiction
Jan. 25th, 2021 ISDA IBOR Fallbacks Protocol and IBOR Fallbacks Supplement to the 2006 ISDA Definitions took effect global icon
Mar. 5th, 2021 The Financial Conduct Authority (FCA) made an announcement that constitutes an index cessation event under the ISDA IBOR Fallbacks Supplement and 2020 IBOR Fallbacks protocol for all 35 LIBOR settings. As a result, the fallback spread adjustment published by Bloomberg is fixed as of the date of the announcement for all euro, sterling, Swiss franc US dollar and yen LIBOR settings. global icon
Mar. 31st, 2021 Working Group for Sterling Risk-Free Reference Rates’ recommendation to cease new issuance of GBP LIBOR referencing loan products, bonds, securitizations and linear derivatives (except for risk management of existing exposure) maturing after 2021 UK flag
May 17th, 2021 CDOR 6-month and 12-month tenors will be discontinued Canadian flag
June 30th, 2021 ARRC Best Practices recommendation for cessation of new USD LIBOR loans, non-CLO securitizations and derivative trades maturing after 2021 US flag
June 30th, 2021 Working Group on Sterling Risk-Free Reference Rates' recommendation to cease initiation of new GBP LIBOR non-linear derivatives that expire after 2021 (except for risk management of existing exposure). UK flag
Sept. 30th, 2021 ARRC Best Practices recommendation for cessation of new USD LIBOR CLO securitizations maturing after 2021 US flag
During Q2/Q3, 2021 Working Group on Sterling Risk-Free Reference Rates recommendation to cease initiation of new GBP LIBOR cross currency derivatives (except for risk management of existing exposure) UK flag
Dec. 31st, 2021 U.S. banking regulators are encouraging banks to cease entry into new USD LIBOR contracts by no later than the end of 2021 US flag
Dec. 31st, 2021 Last publication date for: all euro LIBOR settings; all Swiss franc LIBOR settings; the spot next, 1-week, 2-month and 12-month Japanese yen LIBOR settings; the overnight, 1-week, 2-month and 12-month sterling LIBOR settings; and the 1-week and 2-month US dollar LIBOR settings. global icon
Dec. 31st, 2021 The fallbacks (ie, to the adjusted risk-free rate plus fixed spread) will automatically occur for outstanding derivatives contracts that incorporate the ISDA IBOR Fallbacks Supplement or are subject to adherence to the ISDA 2020 IBOR Fallbacks Protocol after December 31, 2021 for outstanding derivatives referenced to all euro, sterling, Swiss franc and yen LIBOR settings. global icon

Resources

Resources Table
Organization Links
Alternative Reference Rates Committee (ARRC) https://www.newyorkfed.org/arrc/sofr-transition (opens to another site)
Bank of England (BOE) https://www.bankofengland.co.uk/markets/transition-to-sterling-risk-free-rates-from-libor (opens to another site)
https://www.bankofengland.co.uk/markets/sonia-benchmark (opens to another site)
Bank of Japan (BOJ) https://www.boj.or.jp/en/paym/market/jpy_cmte/index.htm/ (opens to another site)
Canadian Alternative Reference Rate Working Group (CARR) https://www.bankofcanada.ca/markets/canadian-alternative-reference-rate-working-group/ (opens to another site)
CME Group https://www.cmegroup.com/trading/interest-rates/sofr-sonia-and-other-alternative-reference-rates.html (opens to another site)
EUREX https://www.eurex.com/ex-en/rules-regs/ibor (opens to another site)
European Central Bank (ECB) https://www.ecb.europa.eu/paym/initiatives/interest_rate_benchmarks/WG_euro_risk-free_rates/html/index.en.html (opens to another site)
European Money Markets Institute (EMMI) https://www.emmi-benchmarks.eu/euribor-org/euribor-reform.html (opens to another site)
https://www.emmi-benchmarks.eu/euribor-eonia-org/about-eonia.html (opens to another site)
Financial Conduct Authority (FCA) https://www.fca.org.uk/markets/libor (opens to another site)
Financial Stability Board – Official Sector Steering Group (OSSG) https://www.fsb.org/work-of-the-fsb/policy-development/additional-policy-areas/financial-benchmarks/ (opens to another site)
ICE Benchmark Administration (IBA) https://www.theice.com/iba (opens to another site)
International Capital Market Association (ICMA) https://www.icmagroup.org/Regulatory-Policy-and-Market-Practice/benchmark-reform/ (opens to another site)
International Swaps and Derivatives Association, Inc. (ISDA) https://www.isda.org/category/legal/benchmarks/ (opens to another site)
LCH Limited https://www.lch.com/Services/swapclear/benchmark-reform (opens to another site)
Loan Market Association (LMA) https://www.lma.eu.com/libor (opens to another site)
Loan Syndication and Trading Association (LSTA) https://www.lsta.org/ (opens to another site)
Reserve Bank of Australia (RBA) https://www.rba.gov.au/mkt-operations/resources/interest-rate-benchmark-reform.html (opens to another site)
Swiss National Bank (SNB) https://www.snb.ch/en/ifor/finmkt/fnmkt_benchm/id/finmkt_reformrates (opens to another site)
TMX Group https://tmx.com/tmx-group/tmx-group-companies (opens to another site)