ICE Benchmark Administration Limited (IBA), the authorized and regulated administrator of LIBOR, has published a consultation on its intention to cease the publication of LIBOR settings. IBA intends that, subject to confirmation following its consultation, one-week and two-month USD LIBOR settings will cease at the end of 2021 and that the USD LIBOR panel will cease at end the of June 2023. The consultation is not, and must not be taken to be, an announcement that IBA will cease or continue the provision of any LIBOR settings after December 31, 2021 or June 30, 2023. The consultation is open for feedback until January 25, 2021. FCA welcomes and supports the extension by panel banks and IBA, together with the proposal to consult on a clear end-date to the USD LIBOR panel, following discussions with the USD LIBOR panel banks. This will incentivize swift transition, while allowing time to address a significant proportion of the legacy contracts that reference USD LIBOR.
FCA also welcomes the supervisory guidance in relation to limiting new use of USD LIBOR after end-2021 from the FDIC, FED, and OCC. FCA will coordinate with the U.S. authorities, and relevant authorities in other jurisdictions, to consider whether and, if so, how most appropriately to limit new use of USD LIBOR, consistent with the objectives of protecting consumers and market integrity. Earlier, IBA had announced its intention to consult that the euro, sterling, Swiss franc, and yen LIBOR panels would cease at the end of 2021. In response to this IBA announcement, FCA issued a statement setting out its potential approach to ensure an orderly wind-down of LIBOR.
Under the Financial Services Bill introduced to Parliament on October 21, 2020, to amend the Benchmarks Regulation, FCA would receive new powers to prohibit some or all new use by supervised entities in the UK of a critical benchmark (such as LIBOR currency-tenor settings) where a benchmark administrator has confirmed its intention that the benchmark will cease. FCA may exercise this power if it considers doing so protects consumers or market integrity. FCA is required to publish a Statement of Policy before exercising this power. FCA plans to consult in the first quarter of 2021 on its proposed policy approach to the use of the power to prohibit some or all new use. FCA's exercise of this power will be subject to the Financial Services Bill being enacted by Parliament, feedback to its upcoming policy proposals on how FCA may use this power, and any subsequent consultations on FCA decisions to use the power once the policy is finalized. FCA would not envisage using this power before the end of 2021. However, FCA expects that its proposals will include consideration of how the exercise of the power could best be coordinated with any measures being taken in other jurisdictions where a benchmark is heavily used, to support the overall effectiveness of the FCA policy.
FCA encourages market participants that are parties to legacy LIBOR contracts to continue work to convert these contracts or adopt robust fallbacks, for example, the IBOR Fallbacks Protocol produced by ISDA. FCA urges market participants to reach an agreement, where feasible, to transition away from LIBOR, as this is the only way for parties to have certainty and control over their contractual terms when LIBOR ceases or is no longer representative. On December 04, 2020, ISDA hosted a webinar with FCA, FED, and Chairman of the Alternative Reference Rates Committee to discuss the recent announcements on LIBOR, with a focus on USD LIBOR. The webinar also covered what the announcements mean for the market and what market participants should do next.
- IBA Consultation and FCA Statement
- FCA Response
- Financial Services Bill (PDF)
- FED Supervisory Guidance
- ISDA Webinar
Keywords: Americas, Europe, UK, US, Banking, Insurance, Securities, IBOR, LIBOR, Benchmark Reforms, Financial Services Bill, IBA, FCA
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