IBOR Benchmark Reform

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Agence Française de Développement launches EUR 1.25 billion due 25 May 2036

The benchmark transition

The IBORs, Interbank Offered Rates, serve as reference rate benchmarks for a wide range of financial products, loans, bonds and derivatives. The most common IBORs are USD LIBOR and EURIBOR on 3 and 6 months tenors.

In order to guarantee the robustness and representativeness of these benchmarks, an international reform begun in 2014, following the recommendations of the FSB (Financial Stability Board). This reform is based on 4 key milestones: 

  • The reform of the IBORs to guarantee maximum use of real transaction data
  • The development of alternative rates (Risk-Free Reference Rates - RFR) to replace the IBORs
  • The transition of cash and derivative products from their respective IBORs to alternative RFRs.
  • The mitigation of contractual risks associated with the end of the publication of the IBORs.

At the same time, the FSB encouraged relevant stakeholders to start working on identifying options to replace the IBORs and organize the transition.

On the European side, the BMR (Benchmark Regulation), in force since 2016, aims to regulate the functioning of the production, the publication and the use of the reference rate benchmarks. BMR’s objective is to strengthen and improve the governance and control mechanisms in order to avoid the risks of manipulation and guarantee the quality and reliability of the methods applied. It contains provisions to ensure the accuracy, the robustness and the integrity of the reference rate benchmarks and guarantee the reliability of the processes that contribute to their determination. The regulation requires users to have robust fallback provisions indicating the actions to be taken, if a reference rate benchmark ceases to be published or changes significantly.

Note that EURIBOR underwent a reform, while maintaining its characteristics and functioning, and has been recognized as compliant with the Benchmark regulation. However, the introduction of fallback provisions is necessary for users in order to comply with the requirements of the regulation.

The end of the publication of LIBOR rates

LIBOR rates are published by the ICE Benchmark Administrator (IBA) based on submissions from a panel of contributing banks, and are overseen by the UK Financial Conduct Authority (FCA).

The FCA announced on March 5, 2021 the dates for the end of the publication of the LIBOR settings

  • 31/12/2021 for all tenors of GBP, JPY, CHF, EUR LIBOR and for USD LIBOR 1 Week and 2 Months
  • 30/06/2023 for all the other USD LIBOR tenors (1M, 3M, 6M and 12M)

After these dates, LIBOR rates will no longer be representative of the underlying markets and can no longer be used. The authorities recommend to users to cease using the USD LIBOR in new contracts after the end of 2021.

NEW RATES RFR – Risk-Free Reference Rates

New overnight reference rates are available for the Yen: the TONAR (Tokyo Overnight Average Rate), for the sterling: the SONIA (Reformed Sterling Overnight Index Average) and for the CHF: the SARON (Swiss Average Rate Overnight).

Since October 2019, the ECB (European Central Bank) has been publishing the €STR, the Euro Short-Term Rate which will replace the EONIA on the 03/01/2022.

Since April 2018, the FED has been publishing a new index for the overnight rate, the SOFR: Secured Overnight Financing Rate, based on the US Treasury's repo market. The SOFR rate will serve as the basis for the replacement of the USD LIBOR rate.

Several aspects of the transition to the new alternative RFRs are under finalization and its success will depend on their adoption by the market participants and their liquidity.


AFD's new loan agreements have included fallback clauses since early 2020. All new contracts that reference the USD LIBOR and EURIBOR, but also agreements that reference any other benchmark index include these clauses.

The fallback provisions define the trigger events and the actions to be taken in these cases:

  • Triggers: define the event that can trigger the replacement of the initial index. They are widely shared and very similar among banks
  • Actions: determine the actions to be taken between the parties to identify the replacement rate while maintaining the economic balance of the contract. The determination of the replacement rate will be based on the recommendations of the market participants, the authorities and the central bank working groups managing the transition.

The European Commission has revised the Benchmark regulation to introduce a legislative fallback clause, allowing the European Commission to designate the replacement rate of a benchmark of critical importance in the event of its disappearance or loss of representativeness. This replacement rate is intended to apply to contracts that do not contain a clause providing for a robust legislative fallback in the event of the permanent disappearance of the initial benchmark.