Wednesday, January 05, 2022

CFTC revises no-action relief on LIBOR transition, provides new reporting relief

By Lene Powell, J.D.

In a new series of staff letters, the CFTC revised previous no-action relief to reflect guidance by the U.K. Financial Conduct Authority (FCA) regarding LIBOR transition timing. The revisions provide a longer transition period for certain swaps and market participants. The CFTC also provided no-action relief regarding certain Part 43 and Part 45 swap reporting obligations for swaps transitioning under the ISDA LIBOR fallback provisions.

Revised relief. The CFTC previously issued three staff letters in August 2020 relating to the LIBOR transition. The 2020 letters (20-23, 20-24, and 20-25) outlined conditions under which counterparties would qualify for relief in connection with amending swaps to update provisions referencing LIBOR or other IBORs. The letters also provided relief for additional types of amendments, and refined relief previously provided based on feedback from market participants.

In March 2021, the FCA confirmed that all LIBOR settings will either cease to be provided by any administrator or will no longer be representative according to the below timeline:
  • For all GBP, EUR, CHF and JPY LIBOR settings, and the 1-week and 2-month USD LIBOR settings, immediately after December 31, 2021; and
  • For all other USD LIBOR settings (the 2023 USD LIBOR Settings), immediately after June 30, 2023.
As a result of the 2021 FCA guidance, some market participants may now transition their swaps referencing the 2023 USD LIBOR settings after December 31, 2021 but before June 30, 2023.

The CFTC’s newly revised relief, issued December 22, 2021, supersedes its 2020 letters to align with the FCA guidance. The CFTC Division of Market Oversight and Division of Clearing and Risk issued revised letters 21-26, 21-27, and 21-28. The new relief is effective until June 30, 2023 for swaps otherwise covered by such letters, to the extent such swaps reference one of the 2023 USD LIBOR Settings.

The relief further provides that eligible end users should use their best efforts to work toward amending the reference rate provisions in certain documentation.

Swaps reporting. Separately, the CFTC’s Division of Data (DOD) issued a no-action letter relating to swaps reporting. Under the relief in Letter No. 21-30, DOD will not recommend enforcement against an entity for failure to timely report under Part 45 the change in a swap’s floating rate. The action relates to floating rate changes made under the ISDA LIBOR fallback provisions from any tenor of Swiss Franc, Euro, British Pound Sterling, or Japanese Yen LIBOR to the applicable risk-free rate (RFR).

The relief is conditioned on the entity using its best efforts to report the change by the applicable deadline in Part 45 and in no case reports the required information later than 5 business days from, but excluding, December 31, 2021.

In addition, DOD will not recommend that the CFTC take an enforcement action against an entity for failure to report under Part 43 the change in the floating rate for a swap modified after execution to incorporate the ISDA LIBOR fallback provisions to transition from referencing any tenor of Swiss Franc, Euro, British Pound Sterling, and Japanese Yen LIBOR to referencing an RFR.

This is CFTC Letters No. 21-26, 21-27, 21-28, and 21-30.