CFTC staff follow up on Banking Regulator Adjustment LIBOR Guidelines – Finance and Banking


United States: Follow-up of CFTC staff on the regulator’s LIBOR setting guidelines

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The staff of the CFTC Market Participants Division and the Division of Market Oversight (the “Divisions”) requested market participants and swap execution facilities (“SEFs”) to cease using LIBOR on a similar schedule to that recommended by US banking regulators .

In a public statement, the divisions said that “the continued reliance on LIBOR benchmarks poses risks to the stability and integrity of the company [derivatives] Markets and Consumer Protection, “and that companies may also be exposed to” financial, behavioral, litigation, operational and reputational risks “if they are not adequately prepared for the transition. Subject to” very limited exceptions “, the use of LIBOR should be avoided. Rates in New Contracts The Divisions urged that (i) market participants accelerate their conversion of existing LIBOR contracts and (ii) SEFs continue to prioritize building liquidity in alternative reference rates The Divisions expect market participants and SEFs to ensure: that your customers, participants and stakeholders are informed about developments in this area.

The staff, citing publications from US banking regulators, the Financial Stability Board and the Federal Housing Finance Agency, said that “prudent risk management should consider, among other things, the robustness of the benchmark interest rate used in place of LIBOR.”

The divisions also “strongly” encourage[d]”Companies consider following” SOFR First “principles, which were unanimously adopted as a recommendation by the CFTC Market Risk Advisory Committee. The department’s staff recommended that market participants and SEFs move from other IBOR rates that may apply may affect their business.

comment Nihal Patel

What is remarkable about the statement is what it is not: law. The statement expressly states that it does not necessarily reflect the views of the CFTC and that it “has no legal force or effect” and “does not change or amend applicable law” or impose additional obligations on any person.

The statement is significant in that it indicates that the CFTC is following the lead of other regulators and that the department’s staff expect CFTC-regulated companies to follow a LIBOR move away from LIBOR schedule in line with U.S. banking regulators’ guidance .

The content of this article is intended to provide general guidance on the subject. Expert advice should be sought regarding your specific circumstances.

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