ISDA Addresses FRB and FCA Concerns About Credit Sensitive Interest Rate Fallbacks – Finance & Banking


United States: ISDA addresses FRB and FCA concerns about credit-sensitive interest rate declines

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The ISDA will use its fallback language upon receipt of the letter Financial regulator (“FCA”) and the Federal Reserve Board (“FRB”) has concerns about ISDA’s fallback language for credit-linked interest rates. The definitions of the Bloomberg Short-Term Bank Yield Index (“BSBY”) and Ameribor recently published by the ISDA provide that the FRB or, in the case of BSBY, the FCA could recommend a replacement rate or officially endorse or convene a committee so. Similar language appears in the ISDA definition for other floating rate options. However, regulators demanded that ISDA remove the wording because they “do not want to endorse or convene a committee to recommend or nominate a replacement rate for“ all credit sensitive ”rates.

In response to the FCA and FRB, ISDA has stated that they:

  • change its definitions to remove references to regulators by October 2021;
  • Work with the Loan Syndications and Trading Association (“LSTA”) and ISDA Working Groups to publish confirmation forms that incorporate the LSTA’s fallback language for credit-sensitive rates; and
  • Conduct a general review of its documentation in 2022 to assess feedback from the FCA that ISDA’s standard documentation for BSBY does not meet the UK Benchmarks Regulation requirements for “robust” fallbacks.

Primary sources

  1. FCA Commentary Letter: Fallbacks to BSBY and Compliance with BMR Fallback Requirements
  2. FRB comment letter: ISDA BSBY fallbacks
  3. ISDA letter to FCA: Fallbacks for “credit-sensitive interest rates”
  4. ISDA letter to FRB: Fallbacks for “credit-sensitive interest rates”

The content of this article is intended to provide general guidance on the subject. Expert advice should be sought regarding your specific circumstances.

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