Interest Rate Benchmark Reform - Phase 2
Background
The amendments Interest Rate Benchmark Reform—Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16) were published by the IASB in August 2020.
In 2014, the Financial Stability Board (FSB) set out a series of recommendations for the reform of key interbank offered rates (IBORs). These reforms were necessitated by the lack of confidence in the reliability and robustness of existing interbank benchmark interest rates arising from attempted manipulation of the rates and the post financial crisis decline in liquidity in interbank unsecured funding markets. IBORs are widely used in the global financial system as interest rate benchmarks for trillions of dollars in financial products and contracts such as loans, bonds and derivatives.
The report also recommended that the major IBORs be replaced with alternative interest rate benchmarks with the objective that such rates will be based on liquid underlying market transactions, rather than on submissions based on expert judgement, leading to rates that are more reliable and provide robust alternative benchmark rates. For example, in the UK, the Sterling London Interbank Offered Rate (LIBOR) is an extensively used interest rate benchmark and is being replaced by the Sterling Overnight Index Average (SONIA) benchmark.
The Amendments arise solely as a consequence of this global regulatory reform and are an important but minor part of that overall change. The objective of the Amendments is to give relief from certain existing accounting requirements that arise from the replacement of existing interest rate benchmarks as a direct consequence of the reform of IBOR.
What are the timelines for UK endorsement and adoption of Interest Rate Benchmark Reform—Phase 2?
The UK left the EU at the end of the Transition Period on 31 December 2020.
The EU did not adopt the Amendments before the end of the Transition Period.
The Secretary of State for BEIS adopted the Amendments for use by UK companies on 5 January 2021. Link to 2021 list of UK adoptions web page