Reforming Interest Rate Benchmarks: How Are We Progressing?

The latest report reveals that progress is being made in the quest to clean up major interest rate benchmarks following

The Financial Stability Board (FSB) has released an interim progress report, which explores how reforms to existing major interest rate benchmarks (such as LIBOR, EURIBOR and TIBOR) and the development and introduction of alternative near risk-free interest rate benchmarks (RFRs) are progressing.

The report updates readers on the quest to reform interest rate benchmarks and prevent further ‘fixing’ in the future.

The FSB, Chaired by Bank of England’s Mark Carney, is an international organisation established to coordinate the work of national financial authorities and international standard setting bodies for the development and promotion of proper transparency and compliance measures for market participants across 24 countries.

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Following the LIBOR and FX fixing scandals, the FSB set up an Official Sector Steering Group (OSSG), composed of central banks and regulatory authorities, to coordinate international work to review and reform interest rate benchmarks and prevent further ‘fixing’ in the future.

The review pertains only to the mostly widely used interest rate benchmarks; specifically, LIBOR, EURIBOR and TIBOR. The intention is that other jurisdictions will fall in line.

The most recent FSB report comes on the heels of an earlier report published back in July 2014 by the OSSG, which laid out a number of recommendations.

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The Recommendations

The earlier report recommended:

  • There should be a strengthening in existing IBORs and other reference rates based on unsecured bank funding costs by underpinning them to the greatest extent possible with transactions data. These enhanced rates are termed “IBOR+”.
  • Steps should be taken to develop alternative RFRs, given that there are certain financial transactions, including many derivatives transactions, that are better suited to reference rates that are closer to risk-free.


According to the report released today, progress has been made in a number of areas, including:

  • reviews of respective benchmark methodologies and definitions,
  • data collection exercises and feasibility studies,
  • consideration of transitional and legal issues, and
  • broad consultations with submitting banks, users and other stakeholders.

As well as the three major “IBORs”, reforms are also being seen in other jurisdictions.

As well as the three major “IBORs”, reforms are also being seen in other jurisdictions. Australia, Canada, Hong Kong, Mexico, Singapore and South Africa have all taken steps to reform their own existing rates.

In relation to the development and introduction of RFRs, the report notes additional progress. In particualar, “detailed data collection exercises have been undertaken in key markets, and work is now underway to identify potential RFRs, where these do not currently exist. In addition to authorities in the euro area, Japan, UK and US, several other OSSG members are also working with industry in local markets to develop RFRs in their respective currencies.”

Pundits can expect another update from the FSB regarding interest rate benchmark reforms in July 2016, as they continue to monitor progress.


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