The International Accounting Standards Board (IASB) has proposed amendments that are intended to help ease the transition away from the London Interbank Offered Rate (LIBOR) toward alternate benchmarks, according to Reuters. 

The LIBOR is the most widely-used benchmark interest rate used by financial institutions when making short-term loans to each other in the international market. It serves as a globally accepted key benchmark interest rate that indicates how much it costs to the banks to borrow from each other. However, the rate became suspect during the financial crisis when it was found that, for years, currency brokers at major banks had been coordinating with each other over instant messaging to fix the rates in order to boost profits and obscure financial difficulties. The scandal rocked the LIBOR's previously sterling reputation as a reliable rate. In the wake of the scandal, the United Kingdom's Financial Conduct Authority, its chief financial regulator, said that the rate is no longer tenable and so would phase out its use by 2021. 

Since the scandal, a number of alternatives have been developed, such as the U.S. Federal Reserve's Secured Overnight Financing Rate (SOFR) but none has gained the market traction that LIBOR had. This leaves many open questions on the part of every major player connected to the financial system that had used the LIBOR as a benchmark. For example, loans that had previously based their rates on the LIBOR may need to be renegotiated, as a new benchmark will likely produce different financial conditions that must be considered. Similarly, U.S. GAAP rules on debt modifications call for a new contract if the terms change to the point that it could be considered a new agreement, which could happen if the lender, which had previously based terms on the LIBOR rate, now uses another metric. 

The IASB, which oversees International Financial Reporting Standards (IFRS), is proposing modifying the hedge accounting requirements "so that entities would apply those hedge accounting requirements assuming that the interest rate benchmark on which the hedged cash flows and cash flows of the hedging instrument are based is not altered as a result of interest rate benchmark reform." Reuters said that this means that financial professional can assume their cash flows will be unchanged as a result of the interest rate benchmark reform and that it’s business as usual. 

The proposal emphasized that it is not intended to provide relief from any other consequences arising from interest rate benchmark reform. Also, if a hedging relationship no longer meets the requirements for hedge accounting for reasons other than those specified by the proposal, then discontinuation of hedge accounting is still required.

The comment deadline is June 17, 2019. The board aims to issue final amendments later in 2019.