A new report by Fitch Ratings found that despite the International Swaps and Derivatives Association (ISDA) releasing a protocol related to fallback language for LIBOR derivatives contracts, there will still be many challenges that the industry needs to address before successfully transitioning away from LIBOR. Fitch notes that while ISDA’s announcement is helpful, there is too little liquidity in the SOFR-based U.S. derivatives market to have a significant impact and that amending fallback language in derivatives contracts was one of the lower risks to not completing a smooth LIBOR transition. The report adds that the market should be more concerned with other milestone delays caused by the pandemic as not addressing these risks could lead to serious market disruption.

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