CFTC confirms Libor Relief

At the request of the ARRC, the CFTC has today announced comprehensive relief to swap dealers and other market participants as they make the transition from swaps that reference LIBOR and other “Impaired Reference Rates” to those that reference alternative benchmarks.

The relief comprises no-action letters from each of the Commission’s main divisions, broadly covering material changes to swaps consequent upon amendments to include fallback provisions, to replace reference rates and other ancillary changes:

• The DSIO CFTC Letter 19-26 provides relief to swap dealers from registration de minimis requirements, uncleared swap margin rules, business conduct requirements, confirmation, documentation, and reconciliation requirements, and certain other eligibility requirements. The relief is not time-limited.
• The DMO CFTC Letter 19-27 provides time-limited relief from the trade execution requirement. Enforcement is stayed until 31 December 2021.
• The DCR CFTC Letter 19-28 provides time-limited relief from the swap clearing requirement and related exceptions and exemptions. Enforcement is stayed until 31 December 2021.

While many Regulators have expressed their intention to provide relief in respect of swap margin rules for the period of Libor transition; the CFTC is the first to fully and formally act. While this is partly a consequence of the ease with which it can issue no-action letters, early clarity is clearly welcome.

The press release ends with this warning from CFTC Chairman Tarbert,

 “Next year is going to be crucial for the transition away from LIBOR. Firms that fail to do so will put themselves and the global financial system at risk.”

Today’s announcement confirms the FCA’s determination to see Libor replaced by end 2021. Libor’s near-ubiquity across diverse products, market sectors and IT systems guarantees that even the initial impact study will require enterprise-wide, root and branch analysis. Despite the lack of a formal deadline and, excepting Sonia, slow adoption of risk-free rates; transition plans should already be well advanced. Market participants cannot afford to wait for the inevitable echo of today’s announcement from other Regulators.

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