The Association for Financial Professionals’ (AFP) director of Treasury and Payments Services, Tom Hunt, recently participated in the Financial Stability Board’s (FSB) Virtual Roundtable on Libor Transition and Benchmark Reforms. In attendance were 58 finance executives representing approximately 15 countries and the European Union. The president of the FSB, John Williams, CEO of the NY Fed, and Andrew Bailey, governor, Bank of England, ran the roundtable. The AFP was the largest U.S. treasury association in attendance.
An international body, the FSB monitors and makes recommendations about the global financial system. Working through its members, the FSB seeks to strengthen financial systems and increase the stability of international financial markets. Policies developed in the pursuit of this agenda are then implemented by jurisdictions and national authorities.
The virtual roundtable provided an opportunity for private sector representatives and members of the FSB Official Sector Steering Group (OSSG) to exchange views and discuss key priorities ahead of the transition away from Libor — and other IBORs, where appropriate.
From the FSB website: Major interest rate reference rates such as Libor, EURIBOR, and TIBOR — generically known as IBORs — are widely used in the global financial system as benchmarks for a large volume and broad range of financial products and contracts. The cases of attempted market manipulation and false reporting of global reference rates, together with the post-crisis decline in liquidity in interbank unsecured funding markets, undermined confidence in the reliability and robustness of existing interbank benchmark interest rates. Uncertainty surrounding the integrity of these reference rates represents a potentially serious source of vulnerability and systemic risk. Against this background, the G20 asked the FSB to undertake a fundamental review of major interest rate benchmarks and plans for reform to ensure that those plans were consistent and coordinated, and that interest rate benchmarks are robust and appropriately used by market participants.
In his address to the roundtable, Hunt started with an introduction to AFP, including who the association represents and what is most important to our members at the present time. He then emphasized the need for proper coordination globally for the various IBORs in intercompany lending activity, namely, working with the various tax authorities to coordinate the approval process to use the varied IBORs as the official rate for intercompany funding.
“This will save individual organizations the hassle of having to seek approval from each individual tax authority,” said Hunt. “They gain approval on an ad-hoc basis and seek to swap LIBOR for the six various IBOR rates based on a regional focus.”
“It would save a tremendous amount of time, energy and effort if the FSB and OSSG could help coordinate for the MNC’s based in the U.S. and globally,” said Hunt.
Participation in the virtual roundtable was a tremendous opportunity for AFP and its members to have a voice on the global stage as the FSB, by way of the OSSG, is coordinating the global phase-out of Libor by the end of 2021.
For more information, please be sure to visit AFP’s Libor Updates page.