Please visit the RBC Enterprise
Website for a complete background on the IBOR Transition, Resources,
FAQs, Industry Timeline and Updates.
This information is meant to assist in updating you about the transition of key global
benchmark interest rates, including LIBOR, and the impact on products that you may have
with RBC Wealth Management Canada.
The London Interbank Offered Rate (LIBOR) is historically the world’s most widely used
interbank offered rate for short-term interest rates. LIBOR benchmarks are based on a
daily quotation of rates by a number of leading banks regarding what it would cost the
submitting bank to borrow unsecured funds from another bank.
The administrator of LIBOR produces daily rates for five different currencies, being:
USD, GBP, EUR, JPY and CHF, each of which are provided for various terms ranging from
overnight lending to a twelve month term. These are commonly referred to as ‘IBORs’ or
by their currency, for example, ‘USD LIBOR’. IBORs are published daily and referenced in
a wide variety of contracts including loans and other credit products, bonds and
In July 2014, the Financial Stability Board (the FSB) (an international body that
monitors and makes recommendations intended to promote financial stability in the global
financial system) issued a report expressing concerns about the reliability and
robustness of existing interbank benchmark rates, including LIBOR. The recommendations
in that report are now being implemented to address the FSB’s concerns, in particular,
that the existing benchmarks were based on reported borrowing cost and were not grounded
in actual transactions. This has triggered a global, industry wide transition away from
all interbank offered rates (IBORs) into alternative risk free rates (RFR’s).
The impact to you depends on what type of product you hold, the reference rate applicable
to that product and the terms of that product.
RBC is monitoring market transition progress for any newly emerging market standard and
will make every effort to ensure that you have adequate notice of the need for change.
Royal Bank of Canada is working on the basis that LIBOR will no longer be available for
use in new client transactions after 2021 and is actively participating in industry-wide
discussions and monitoring market responses regarding the transition away from LIBOR.
RBC is collaborating with various working groups in the jurisdictions in which it
operates to track the development of alternative (or reformed) nearly risk free
reference rates and consider their implementation across a number of markets and
RBC Wealth Management Canada has reviewed its existing credit contracts and considered
which alternative reference rates are most appropriate in view of the analysis it has
undertaken of a range of possible replacement rates for LIBOR, including how those
benchmark rates have fluctuated over a five year period. RBC Wealth Management Canada
have concluded that, for the credit products it offers, moving clients from US LIBOR to
the Royal Bank US Base Rate is the most appropriate replacement for its credit clients.
Currently, the replacement rate is still unknown, but it appears that USD LIBOR will most
likely be replaced by a rate referencing the Secured Overnight Financing Rate (SOFR)
published by the Federal Reserve Bank of New York. Loans or products in currencies other
than US dollars will be replaced by different rates. RBC will provide further
communication to clients prior to implementing the replacement rate. USD LIBOR will not
officially be discontinued for legacy investment contracts until June 2023.
CDOR (Canadian Dollar Offered Rate) is the recognized financial benchmark in Canada for
bankers’ acceptances (BAs) with a term of maturity of 1 year or less. It is the rate at
which banks are willing to offer credit to companies utilizing BAs. In Canada, RBC uses
BAs as short-term, fixed rate vehicles for qualifying clients.
CDOR is administered by Refinitiv Benchmark Services (UK) Limited (“RBSL”), which is
responsible for collecting input data and publishing the CDOR benchmark.
Based on the recommendation from the independent CDOR Oversight Committee led by the
Office of the Superintendent of Financial Institutions, RBSL has announced that the
calculation and publication of the 6-month and 12-month CDOR tenors ceased effective May
14, 2021. As a result, RBC will not be offering 6 or 12-month BA or CDOR tenures after
May 14, 2021. Clients will be offered only 1-month, 2-month and 3-month tenors after
The Canadian Overnight Repo Rate Average (CORRA) is a measure of the cost of overnight
general collateral funding in Canadian dollars using data submitted to the Bank of
Canada. The Bank of Canada took over the calculation and publication of CORRA from
Refinitiv Benchmark Services (UK) Limited on June 15, 2020. CORRA data can either be
retrieved directly from the Bank or from data distributors.
The Canadian Alternative Reference Rate Working Group (CARR) was created to ensure
Canada’s interest rate benchmark regime is robust, relevant and effective in the years
ahead. At this point in time, the CARR has not made any recommendation or official
determination on the termination of CDOR or its appropriate replacement.
The majority of Canadian Fixed Income products are NOT impacted by this transition.
The following products are potentially impacted if they are
maturing/callable AFTER the CDOR transition date:
The following products are not impacted by the changes to
Any floating rate bonds maturing after the CDOR transition date will be subject to the
Fallback provisions outlined in the original bond indenture. This also applies to
Structured Products (more on that below).
Fixed to Float Subordinated bonds require further evaluation due to their call feature.
Most bonds offer a fixed rate until a given call date. If the bond is not called by the
issuer on that date, it then floats at a spread to CDOR until final
maturity. Bonds that are called will not have a chance to float and will not be
subject to any of the uncertainties surrounding the new RFR.
Regardless of the IBOR transition, issuers are incentivized to redeem these issues at
their first opportunity (call date) as they will begin to lose capital treatment if
A trend in the market should give investors some comfort: to date, every fixed/floater
bond issued by a Canadian Bank or Insurance company has been called on the first
call/reset date, meaning that they would not be subject to any of the uncertainties
surrounding the new RFR. There is no guarantee that all Fixed/Floaters will be called
going forward, but in light of the uncertainty regarding IBOR reform, the loss of
capital treatment and the potential reputational risk to the issuer, we anticipate that
this trend will continue.
Strip bonds in Canada are created from an underlying bond, as the components from the one
bond are ‘stripped’ away to create a new set of securities. Virtually all strip bonds
from a financial institution (bank or insurance company) are created from existing
Fixed/Floater bonds, so the dynamics mentioned above would apply to these products as
well. Note that only the Principal (“Residual”) portion is potentially in scope. The
Interest (“Coupon”) portion is out of scope.
Strip bonds created from conventional fixed rate bonds are not in scope. This would
include all Government strip securities.
Bond indentures will generally contain some form of fallback language which outlines what
steps would be taken if IBOR is temporarily or permanently discontinued. Fallback
language is considered adequate when it is contractually clear and actionable by the
terms of the instrument on how the temporary and permanent alternative reference rate
will be identified and is not contingent upon further agreement among two or more
parties or the voluntary submission of rates by third parties.
The majority of bonds in existence contain adequate fallback provisions and no additional
action is needed from you.
For bonds with insufficient fallback language, RBC will reach out to you in the coming
months to inform you of the issue and determine if any action is needed.
The majority of bonds outstanding have adequate fallback provisions so there is no action
For bonds with insufficient fallback language, it is best to speak to your Investment
Advisor to determine if any action is needed on your specific holding and the timing for
such recommendation, if necessary. For our non-discretionary RBC Wealth Management
Canada clients, we will be in contact to inform you of which
products you have with us that are impacted.
For any ETFs or Mutual Funds that hold products linked to IBOR, it will be up to the fund
manager to determine the impact and best course of action.
We will update this webpage with further information and updates from time to time. If
you have any further questions in the meantime, please contact your Investment Advisor.
iBonds with no floating rate component