NYDFS Issues Letter Requiring LIBOR Transition Plans | Practical Law

NYDFS Issues Letter Requiring LIBOR Transition Plans | Practical Law

The New York State Department of Financial Services (NYDFS) issued an industry letter to New York-regulated financial institutions instructing them to submit their plans addressing the upcoming LIBOR cessation and related transition risks to NYDFS by February 7, 2020.

NYDFS Issues Letter Requiring LIBOR Transition Plans

Practical Law Legal Update w-023-4877 (Approx. 4 pages)

NYDFS Issues Letter Requiring LIBOR Transition Plans

by Practical Law Finance
Published on 06 Jan 2020 • USA (National/Federal)
The New York State Department of Financial Services (NYDFS) issued an industry letter to New York-regulated financial institutions instructing them to submit their plans addressing the upcoming LIBOR cessation and related transition risks to NYDFS by February 7, 2020.
On December 23, 2019, the New York State Department of Financial Services (NYDFS) issued an industry letter to New York-regulated financial institutions instructing them to submit their plans addressing the upcoming LIBOR cessation and related interest rate benchmark transition risks to NYDFS by February 7, 2020.
The letter states that all regulated institutions must submit a plan to NYDFS detailing the institution's:
  • Programs that identify, measure, monitor, and manage all risks related to benchmark transition.
  • Processes for analyzing and assessing alternative rates, and the associated risks and benefits of such rates.
  • Processes for communication with customers and counterparties regarding benchmark transition.
  • Processes and plans for operational readiness for LIBOR cessation.
  • Governance framework, including oversight by the board of directors or the equivalent governing authority.
The letter further states that commercial loans that are expected to mature or be renegotiated before 2021 may be converted to an alternative rate and/or incorporate fallback provisions identifying triggers for introducing replacement rates prior to the discontinuation of LIBOR. Over-the-counter (OTC) derivatives transactions that extend beyond 2021 may similarly be amended.
In December 2019, the Office of the Comptroller of the Currency (OCC) stated in in their Semiannual Risk Perspective that it also plans to increase oversight of the LIBOR transition. In June 2019, Federal Reserve Board (FRB) Vice Chairman for Supervision, Randal Quarles, said in a speech that the FRB's supervisory teams have already begun asking banks about their transition plans.
For more information on LIBOR and interest rate benchmark reform, see Article, Ring in the New: Expert Q&A on LIBOR Replacement and the Secured Overnight Financing Rate (SOFR) and Practice Note, Interest Rate Benchmark Reform: Loan Markets: Transition Away from LIBOR.