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The planned demise of key financial benchmark the Canadian dollar offered rate (CDOR) in mid-2024 poses limited risk to the big banks, says Fitch Ratings.

Regulators announced earlier this week that Refinitiv Benchmark Services Ltd. will stop publishing CDOR in June 2024.

The Office of the Superintendent of Financial Institutions (OSFI) has said that all new derivative contracts and securities are expected to transition to alternative benchmark rates by June 30, 2023 and to transition all loan agreements by the end of June 2024.

According to Fitch, there is more than $20 trillion in financial instruments geared to CDOR. Yet, the rating agency said transition and operational risks faced by the banks from the benchmark’s elimination should be modest.

The transition risk for CDOR-linked derivatives will be limited, Fitch said, as those contracts are governed by International Derivatives Swaps Association agreements.

However, the transition of loans that reference CDOR to new rates — which total less than $200 billion — “is expected to be more challenging,” Fitch said.

That said, it noted the banks will be able to leverage their efforts to transition away from U.S. Libor — a transition to be completed by June 2023 — to mitigate the transition risks in the Canadian market too.

That same experience working on the planned cessation of U.S. Libor should also limit operational risk for the big Canadian banks, Fitch said.