FFIEC Issues Joint Statement on Managing the LIBOR Transition | Practical Law

FFIEC Issues Joint Statement on Managing the LIBOR Transition | Practical Law

The Federal Financial Institutions Examination Council (FFIEC) issued a statement highlighting the financial, legal, operational, and consumer protection risks that will result from the expected discontinuation of LIBOR.

FFIEC Issues Joint Statement on Managing the LIBOR Transition

Practical Law Legal Update w-026-5161 (Approx. 3 pages)

FFIEC Issues Joint Statement on Managing the LIBOR Transition

by Practical Law Finance
Published on 15 Jul 2020 • USA (National/Federal)
The Federal Financial Institutions Examination Council (FFIEC) issued a statement highlighting the financial, legal, operational, and consumer protection risks that will result from the expected discontinuation of LIBOR.
On July 1, 2020, the Federal Financial Institutions Examination Council (FFIEC) issued a joint statement on behalf of its members which highlights the financial, legal, operational, and consumer protection risks that will result from the expected discontinuation of LIBOR. The statement does not establish new guidance and regulations, but does encourage supervised institutions to continue their efforts to transition to alternative reference rates.
FFIEC recognizes that the financial services industry has used LIBOR as a short-term reference rate and the LIBOR transition is a significant event that supervised institutions should closely manage. The statement therefore advises institutions to:
  • Identify and quantify their LIBOR exposures to assist management to better understand the risks of LIBOR's discontinuance and determine actions to address them such as communications with clients and counterparties about changing contract terms.
  • Consider limiting their exposure by discontinuing the origination or purchase of LIBOR-indexed instruments.
  • Identify and address contracts with inadequate fallback language and ensure that new contracts either utilize a reference rate other than LIBOR or include robust fallback language that includes a clearly defined alternative reference rate after LIBOR's discontinuation.
  • Understand the risks associated with various consumer financial products as a result of the LIBOR transition and plan to address or mitigate these risks. Transition plans should:
    • identify affected consumer loan contracts;
    • highlight necessary risk mitigation efforts; and
    • address development of clear and timely consumer disclosures regarding changes in terms.
  • Evaluate their reliance on third-party service providers that provide valuation or pricing services that reference or use LIBOR and associated discount curves in the services they deliver.
  • Have risk management processes in place to identify and mitigate their LIBOR transition risks.