10.3 REMINDER OF THE REFORM OF INTEREST RATE INDICES AND IMPLICATIONS FOR THE CRÉDIT AGRICOLE GROUP The reform of the IBOR (InterBank Offered Rates) indices initiated by the Financial Stability Board in 2014 aims to replace these indices with alternative rates and more specifically with Risk Free Rates (RFR). This reform accelerated on 5 March 2021 when the IBA - the administrator of LIBOR - confirmed the important milestone of the end of 2021 for the end of publication or non-representativeness of LIBOR, except for the most widely used tenors of USD LIBOR (overnight, one, three, six and twelve month maturities) for which the date is set for 30 June 2023, Since 2019, Crédit Agricole Group has been preparing and managing the transition to interest rate indices for all its activities. These transitions are in line with the timetables and standards defined by the banking industry - some of which Crédit Agricole participates in - and the European regulatory framework (BMR). In accordance with the recommendations of national working groups and the authorities, Crédit Agricole Group recommends and favours switching to alternative indices in anticipation of the disappearance of benchmark indices, while aiming to meet the deadlines set by the market and even imposed by the authorities, - The Group's efforts to upgrade its tools and processes and to mobilise its support teams and business lines to absorb the workload generated by the changeovers, in particular contract renegotiations, ensure that these are carried out in an orderly and controlled manner. All the actions undertaken will thus enable the Group's entities to ensure the continuity of their business after the disappearance of the benchmark indices and to be able to manage new product offerings referencing RFRs or certain RFRs in the future, while limiting operational and commercial risks after the indices cease to exist. USD LIBOR transition: At Group level, the very strong involvement of the teams and the structure put in place have made it possible to complete the transition of almost all the contracts by anticipating or activating the fallback clause and to limit the use of synthetic USD LIBOR after 30 June 2023. For some of these contracts and financial instruments, the Group has also been able to benefit from the mechanism put in place by the US authorities, which have approved the designation of a statutory replacement rate perennial to USD LIBOR for contracts governed by US law. The actions taken in the second half of 2023 were mainly aimed at concluding negotiations that had not been fully finalised before 30 June and effectively switching leasing contracts before the first interest period based on the substitution index in accordance with the transition strategy adopted. Transition of other indices (CDOR, WIBOR, SOR): At 31 December, the Group still had some exposure to other benchmark indices whose nonrepresentativeness or cessation had been announced: - CDOR (Canada), the termination of which has been announced after 28 June 2024 for maturities not yet determined (one, two and three months). - The WIBOR (Polish benchmark index, classified as critical by the European Commission) for which the cessation schedule has not yet been confirmed by the administrator. - The SIBOR (Singapore), which is due to expire after 31 December 2024 on one- and three-month maturities. The transitions to CDOR and SIBOR relate almost exclusively to investment banking, whereas WIBOR is also used within the Crédit Agricole Group by CA Poland (retail banking) and CAL&F through the EFL entity (leasing). Action continued in the second half of the year to prepare as far in advance as possible for the actual switchovers and to finalise the inventory of clients and transactions exposed, CACIB has also halted the flow of new CDOR transactions during 2023, barring authorised exceptions, Virtually all CDOR inventory and a very large proportion of WIBOR inventory are made up of derivatives where it is planned to rely on ISDA fallback provisions, since most counterparties have signed up to the ISDA 2020 protocol, Managing the risks associated with rate reform: In addition to preparing and implementing the replacement of benchmark indices, since 2019 the Group's work has also focused on managing and controlling the risks inherent in the transition from one benchmark to another, including financial, operational, legal and compliance risks, particularly those relating to client protection (conduct risk). Future operational migrations will be based on all the processes and tools previously developed for the transition of contracts indexed to IBOR rates, which have already been discontinued or rendered unrepresentative. In order to limit operational and commercial risks, the entities affected will also organise, where possible, proactive transitions in line with the recommendations and milestones defined by the authorities, To date, the potential risks associated with the reform concern only the transition from WIBOR and CDOR, for which the issues are very localised and deemed insignificant for the Group, and the transition from SIBOR, for which exposures are extremely marginal, Annual Report 2023 137
RkJQdWJsaXNoZXIy NzMxNTcx