Issue link: https://read.uberflip.com/i/1271078
5 The downside of relying on LIBOR became apparent in 2012 when certain banks were found to have falsely inflated or deflated their rates to fraudulently profit from trades or create a misleading perception of their creditworthiness 1 . As a result, legislation was passed in the UK that led to the creation of the Financial Conduct Authority (FCA), which subsequently declared that LIBOR was no longer "fit for purpose" 2 . Low trading activity and the subjectivity in the rate formation process were the main reasons for the decision. Regulator-sponsored working groups were then set up in various geographies to identify alternative risk-free reference rates and promote their adoption. These new bench- marks are being developed, as outlined in the table below: Location Old LIBOR Rate New risk-free rate Transition committee United States USD LIBOR SOFR Alternative Reference Rates Committee United Kingdom GDP LIBOR SONIA Sterling Working Group on Risk-free Rates Japan TIBOR, JPY LIBOR and TIBOR TONA Cross-Industry Committee on Japanese Yen Interest Rate Benchmarks Europe EURIBOR and EUR LIBOR ESTER European Money Markets Institute (ENMI) and Euro RFR Working Group Canada CDOR CORRA Canadian Alternative Reference Rate Working Group (CARR) Switzerland CHF LIBOR SARON The National Working Group on Swiss Franc Reference Rates Australia BBSW RBA Cash Rate (AONIA) Australian Financial Markets Association 1 Understanding the Libor Scandal, Council on Foreign Relations, October 12, 2016 2 The Wheatley Review of LIBOR, UK government research, September 2012 CONTENTS 01/ Executive summary 02/ Timeline & latest updates 03/ Inherent challenges 04/ Loan servicing impacts 05/ RFR experience 06/ Sopra Banking Software in action