financial conduct authority ( fca ) has reached an agreement with banks to keep submitting rates until the end of 2021, but beyond that date the existence of libor is not guaranteed. 5 the fca has made it clear that it expects at least some banks to leave the libor panels soon after 2021, making libor even less representative than it is now, and that it would need to judge whether libor was still representative at that stage. 6 headway is being made while the clock is inevitably ticking, progress is being made. in 2017, the arrc selected sofr as its preferred alternative to u. s. dollar libor. 7 since april 2018, the new york fed has produced sofr every business day. it ’ s based on an important underlying market with much higher volumes than libor, and is compliant with the principles for financial benchmarks set forth by the international organization of securities commissions ( iosco ). 8 the international swaps and derivatives association ( isda ) has led really important work on the development of contingencies for some derivatives products for the scenario where libor ceases to exist. 9 a key question is what will happen if the fca finds libor to no longer be representative. two large central counterparties have already indicated that they would expect to move the libor trades they clear to sofr if this occurred. the financial stability board ’ s official sector steering group ( ossg ) has indicated its support for isda to include such a trigger to avoid fragmentation between cleared and uncleared derivatives. 10 derivatives contracts account for 95 percent of the exposure to u. s. dollar libor, so universal changes to these contracts would be a significant leap forward. if the market signs up to the isda protocol when it ’ s published, it will be a considerable milestone and will go a long way toward reducing risks to firms, markets, and the financial system. in addition, the arrc has released four sets of recommended fallback language for different types of cash products and has published potential paths forward for adjustable - rate mortgages ( arms ). 11 while mortgages are a small part of the overall exposure, it ’ s vitally important that consumers understand what the changes being made mean in real terms. last week, the federal reserve board, the fdic, the occ, and other agencies released a proposal on adjusting margin requirements for covered swap entities that, among other things, are meant to remove unintended hurdles to signing the

isda protocol and moving away from libor. 12 the financial accounting standards board has similarly released an exposure draft with proposals to smooth the transition from an accounting perspective. 13 finally, earlier this year, the sec staff issued a statement highlighting risks and disclosures for market participants to evaluate proactively as they transition away from libor. 14 the challenges ahead 3 / 5 bis central bankers'speeches progress has been made, but there ’ s still much to do. sofr is sometimes criticized for the lack of a term rate, but my message is don ’ t wait for a term rate to get your house in order. don ’ t use that as an excuse to halt the vital work of understanding where your exposure to libor lies and how to prepare your business. the ossg has produced a document explaining how market participants can use overnight risk - free rates, as opposed to waiting for term rates. 15 in addition, the new york fed is preparing average sofr rates and a sofr index, with the goal of publishing them daily by the middle of next year. contracts that reference u. s. dollar libor continue to be written, which only serves to increase the level of systemic risk. in rare cases where for some reason libor must be referenced, robust fallback language that accounts for a future without libor needs to be included. i also strongly encourage market participants to address legacy libor - linked contracts. there ’ s no one - size - fits - all approach for closing out or converting existing libor positions so market participants need to get ahead of this issue. we know this is difficult and complex work. at the new york fed, we ’ re working to identify where we have potential exposure to libor and other non - iosco - compliant reference rates. we have teams examining monetary policy operations, foreign reserve management activities, and trading agreements with counterparties. we want to hear your voice so we can incorporate your feedback and facilitate the development of the tools you need to ensure an orderly transition. engage with the official sector about how libor affects your firm and your challenges in this transition. and note that just last week, the arrc published a checklist designed to support market participants with the adoption of sofr. 16 implementation will be complex : financial contracts need to be scrutinized, operations need to be evaluated, and technology needs to be updated. the work involves numerous jurisdictions and multiple asset classes, and will require changes from how business is conducted to how