Date posted: 1/07/2019 5 min read

LIBOR reform: changing the finance industry's most important number

Due to concerns about manipulation, IBORs are in the process of being replaced by interest rates based on observable market transactions – what does this mean for you and your clients?

In brief

  • Interbank offered rates are in the process of being replaced
  • Financial institutions and companies need to plan for the changes
  • The IASB has commenced a 2 phase project to address the impacts of IBOR reform

Interest rate benchmarks such as interbank offered rates (IBORs) play an important role in global financial markets. They are used to index trillions of dollars worth of financial products worldwide, such as loans, debt securities and derivatives. However, following concerns that IBORs are susceptible to manipulation, they are in the process of being replaced by interest rates based on observable market transactions. Relevant authorities are progressing toward replacing IBORs by the end of 2021. While most of the focus has been on the replacement of foreign currency benchmarks such as GBP Libor and USD Libor, the Australian benchmark rate, the bank bill swap rate (BBSW), could also be affected. In Australia, ASIC, APRA and the RBA are urging financial institutions to plan for IBOR transition. However, given the pervasiveness of IBOR benchmark rates in many debt and risk management instruments, IBOR reform will affect many companies across many industries.

In this article, Manuel Kapsis, CA, Director, PwC, John Dovaston, FCA, Partner, PwC, and Alfredo Martinez, Partner, PwC discuss what’s happening in relation to LIBOR reform, what the accounting standards setters are doing, what’s coming next and what you need to do.

Interest rate benchmarks such as interbank offered rates (IBORs) play an important role in global financial markets. They are used to index trillions of dollars worth of financial products worldwide, such as loans, debt securities and derivatives. However, following concerns that IBORs are susceptible to manipulation, they are in the process of being replaced by interest rates based on observable market transactions.