Transitioning to Risk Free Rates
The Financial Conduct Authority (FCA) plans to phase out the London Interbank Offered Rate (LIBOR) by the end of 2021. LIBOR will be replaced by new risk-free rates (RFRs), which are overnight rates derived from real transactions.
Estimates suggest that nearly $400 trillion of financial instruments across various currencies globally are still tied to LIBOR1, with derivatives particularly affected. For this reason, regulators are describing the transition away from LIBOR as the biggest change to hit the financial services industry since the introduction of the Euro in 1999.