FASB Proposes Scope Clarification for Reference Rate Relief

Subscribe to newsletter

On July 27, 2017 the Financial Conduct Authority, the U.K.’s top regulator, tasked with overseeing Libor, announced the benchmark will be phased out by 2021. Alternative risk-free rates are being set up for the different currencies. For the US Dollar, the US Fed’s Alternative Reference Rates Committee (ARRC) has recommended using the Secured Overnight Financing Rate (SOFR), which has been published since April 2019. For the British Pound, it is the Sterling Over Night Index Average (SONIA), and for the Euro, the Euro Short-Term Rate (€STR).Regulators are now expecting financial institutions to actively prepare for the cessation of LIBOR and the adoption of alternative risk-free rates. The FCA and Prudential Regulation Authority (PRA) were the first regulators globally to ask firms for their preparation and actions to manage the LIBOR transition, in a September 2018 letter. Other regulators, including the European Central Bank’s supervisory board, followed. ISDA has run several consultations to improve the fallback process. Read more

FASB issued a proposal Thursday that is intended to clarify the scope of the board’s guidance on reference rate reform.

In March, FASB issued Accounting Standards Update No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The standard was issued to address accounting challenges resulting from the sunsetting of the London Interbank Offered Rate (LIBOR) as well other benchmark interest rates banks use to make short-term loans to one another.

Subscribe to newsletter https://harbourfrontquant.beehiiv.com/subscribe Newsletter Covering Trading Strategies, Risk Management, Financial Derivatives, Career Perspectives, and More

FASB ASC Topic 848 provides temporary, optional expedients and exceptions for using GAAP to contract modifications and hedging relationships that reference LIBOR or another reference rate that is expected to be discontinued. Read more

Further questions

What's your question? Ask it in the discussion forum

Have an answer to the questions below? Post it here or in the forum

LATEST NEWSAustralia's Perpetual confirms fresh bid from KKR
Australia's Perpetual confirms fresh bid from KKR
Stay up-to-date with the latest news - click here
LATEST NEWSUkraine, Europe will be part of 'real' peace talks, says Rubio, as US weighs Putin's motives
Ukraine, Europe will be part of 'real' peace talks, says Rubio, as US weighs Putin's motives
Stay up-to-date with the latest news - click here
LATEST NEWSRussian troops intensify attacks on Ukrainian forces in east, military says
Russian troops intensify attacks on Ukrainian forces in east, military says
Stay up-to-date with the latest news - click here
LATEST NEWSHSBC investors back CEO's investment banking retrenchment
HSBC investors back CEO's investment banking retrenchment
Stay up-to-date with the latest news - click here
LATEST NEWSUS says airstrike in Syria kills al Qaeda affiliate leader
US says airstrike in Syria kills al Qaeda affiliate leader
Stay up-to-date with the latest news - click here

Leave a Reply