Australian companies should completely cease reliance on new LIBOR products after 31 December 2021. ASIC, APRA, and the RBA expect no new contracts to reference the London Interbank Offered Rate (LIBOR) after this date.
Companies may face financial and operational risks if they continue to rely on LIBOR. ASIC has previously written to ASX100 companies on preparing for LIBOR transition.
In support of the industry, ASIC has provided further guidance and recommendations on key LIBOR transition issues to ensure directors and corporate treasurers have the necessary information to achieve a successful transition.
Be operationally ready
ASIC has communicated to all financial institutions that they should stop the sale and issuance of LIBOR-referenced contracts that expire after relevant cessation dates if they do not have robust fallback language and appropriate client communication.
The impact this has on companies is that they need to be operationally ready for alternative reference rates (ARRs) and their related products by the end of 2021.
Being operationally ready means that companies need to ensure systems and processes can accommodate financial contracts that reference ARRs. Systems may need to be updated and tested to support new conventions.
Act now: Engage with your bank and financial service provider
ASIC strongly urges companies to conduct a LIBOR ‘stocktake’ and identify all areas of your organisation that are affected by LIBOR. If you have large exposures, your company may have already started the transition process. If not, you need to engage with your banks and financial services providers to actively transition to ARRs recommended by the relevant the LIBOR transition working groups.
Many regulators and working groups for key LIBOR jurisdictions have set milestones and timelines to support a smooth transition. We recommend that companies review these milestones and consider the implications on their business (see links below).
To assist the industry, ASIC will continue to provide guidance and clarification for firms that may face difficulties in dealing with the scope of LIBOR transition.