FCA and IBA to Consult on LIBOR Cessation
On November 18, the ICE Benchmark Administration ("IBA") and the UK Financial Conduct Authority ("FCA") published separate announcements on the future of the London Inter-bank Offered Rate ("LIBOR").
IBA announced that it intends to consult, as the benchmark administrator under the EU Benchmarks Regulation ("BMR"), on the stoppage of the publication of GBP, EUR, CHF and JPY LIBOR after December 31, 2021.
In respect of USD LIBOR, IBA stated: "Discussions involving IBA, the FCA, other official sector bodies and the panel banks are continuing regarding the future of USD LIBOR. IBA expects to be able to make further announcements regarding USD LIBOR when the discussion process concludes. There can be no certainty or guarantee that IBA will be able to publish any USD LIBOR settings after December 31, 2021."
IBA and the FCA both stated that IBA's announcement should not be taken to mean that IBA will necessarily cease the publication of any LIBOR settings after December 31, 2021; the announcement means only that IBA will be consulting on the process. The FCA has also noted that IBA has a policy of giving market participants at least one year's notice of an intention to cease publishing any LIBOR settings. Separately, ISDA also confirmed today that neither of these announcements constitutes an index cessation event under the IBOR Fallbacks Supplement or the ISDA 2020 IBOR Fallbacks Protocol.
The FCA separately published a statement acknowledging IBA's announcement and two consultations setting out its approach to the use of proposed new powers under the BMR (as amended by the proposed Financial Services Bill) to ensure an orderly wind down of LIBOR. In one of the consultations, the FCA discussed how it would use its proposed new power to require continued publication of critical benchmarks (such as LIBOR) on the basis of a changed methodology (sometimes known as the publication of a "synthetic" LIBOR). The other consultation sets out the FCA's views on the circumstances in which those powers could become relevant (e.g., in a situation where LIBOR is no longer determined to be representative under the BMR). The consultations will close on January 18, 2021. The proposals in the consultations are predicated on the Financial Services Bill being passed in its current form.
The FCA has also published an overview document setting out its interpretation of its powers under the amendments to the UK BMR.
Commentary
These announcements represent a further step towards a confirmation from the regulator that LIBOR in its current form is likely to cease by the end of 2021. That said, a number of areas remain to be clarified, such as the definition of "tough legacy" contracts, or the future of USD LIBOR. Market participants will be keeping a close eye on the FCA's future consultations to help them plan their LIBOR transition processes.