Background
Concerns about benchmark rates have been swirling for years. Indeed, even before the LIBOR scandal hit in 2012, unsecured wholesale borrowing activity had been in decline. The LIBOR scandal made clear that the potential for manipulation was high and when in July 2017 the UK’s Financial Conduct Authority (FCA) announced it would no longer compel panel banks to make LIBOR submissions after 2021, the writing was on the wall: the IBORS' days were numbered.
Over the past years, it has become increasingly clear that global regulatory preference was to replace IBOR with risk-free (overnight) rates based on transactional data. Central banks have encouraged the forming of industry working groups to help in solving issues arising from establishing and then transitioning to new more trustworthy benchmark rates. In the run-up to 2021, working groups and several industry advocates have been working to ensure that the new rates will have established robust underlying cash markets, sufficient liquidity in hedging instruments, and broad acceptance from market participants.
