Featured Product

    FCA Response to ISDA on Reasonable Period for Non-Representative LIBOR

    January 30, 2020

    FCA issued a letter to ISDA in response to an ISDA letter to FSB. In this letter, ISDA had asked whether FCA and ICE Benchmark Administration (IBA) can give further clarity about the length of any “reasonable period” in which a non-representative LIBOR might be published prior to the final cessation of LIBOR. The FCA letter sets out its response to describe the laws relevant in this situation and provides clarity on how FCA intends to apply these laws. IBA also responded to the ISDA letter and has announced a rulebook consultation process regarding the inclusion of an automatic trigger.

    The FCA letter sets out why market participants should not assume that any period of non-representative LIBOR based on reduced panel bank submissions would last for more than a short period. The law governing critical benchmarks such as LIBOR is set out in the EU Benchmarks Regulation. Notwithstanding the preference for an orderly cessation, planned in advance, the mechanics of the Benchmarks Regulation mean that the publication of a non-representative LIBOR cannot be ruled out, at least for a period of time. EU-supervised firms could potentially be prohibited from entering into new LIBOR transactions, and even from continuing to use LIBOR in existing transactions in some circumstances, under the Benchmarks Regulation.

    FCA has made clear that it sees no way of changing LIBOR to make it representative again after the panel bank departures have rendered it non-representative. Consequently, the only way FCA sees this provision operating in practice is that the administrator must cease the rate within a reasonable time period. Moreover, a non-representative panel bank LIBOR could continue only for such time as a minimum number of panel banks were prepared to continue contributing to the benchmark such that IBA’s Reduced Submissions Policy did not apply. FCA has made clear that it has no plans to compel panel banks to contribute once the existing voluntary agreement with them expires. Consistent with having no plans to compel panel banks to contribute after 2021, assuming insufficient willing voluntary contributors, FCA would not expect to compel IBA to continue to produce a non-representative panel bank LIBOR. 

    FCA would not seek to prolong a non-representative panel bank LIBOR simply to benefit firms which had failed, or continued to fail, to act on opportunities to transition. Where contracts can practicably be amended to reference alternative rates by bilateral agreement or other arrangements, they should be, before end-2021. EU supervised firms are required by the Benchmarks Regulation to have appropriate plans in the event that a benchmark materially changes or ceases to be provided. Firms can meet this requirement by having pre-cessation triggers included in LIBOR contracts that cannot be proactively transitioned away from the rate. FCA recognizes that there are some LIBOR-referencing contracts that it is not practicable to change and a task force under the Sterling Risk Free Rate Working Group has been dedicated to the topic of "tough legacy."

     

    Related Links

    Keywords: International, Europe, UK, Banking, Securities, LIBOR, IBOR, Pre-Cessation Triggers, Interest Rate Benchmarks, Derivatives, Benchmarks Regulation, FSB, FCA, ISDA

    Featured Experts
    Related Articles
    News

    EBA Finalizes Remuneration Standards for Investment Firms in EU

    EBA finalized the two sets of draft regulatory technical standards on the identification of material risk-takers and on the classes of instruments used for remuneration under the Investment Firms Directive (IFD).

    January 21, 2021 WebPage Regulatory News
    News

    ECA Recommends Actions to Enhance Resolution Planning for Banks

    EC published, in the Official Journal of the European Union, a notification that the European Court of Auditors (ECA) has published a special report on resolution planning in the Single Resolution Mechanism.

    January 20, 2021 WebPage Regulatory News
    News

    BoE Publishes Key Elements of the 2021 Stress Testing for Banks in UK

    BoE published a scenario against which it will be stress testing banks in 2021, in addition to setting out the key elements of the 2021 stress test, guidance on the 2021 stress test, and the variable paths for the 2021 stress test.

    January 20, 2021 WebPage Regulatory News
    News

    PRA Proposes Rules on Identity Verification of Depositor Protection

    PRA published a consultation paper (CP3/21) proposes rules regarding the timing of identity verification required for eligibility of depositor protection under the Financial Services Compensation Scheme (FSCS).

    January 20, 2021 WebPage Regulatory News
    News

    FSB Publishes Work Program for 2021

    FSB published the work program for 2021, which reflects a strategic shift in priorities in the COVID-19 environment.

    January 20, 2021 WebPage Regulatory News
    News

    FCA Issues Update on Move to New Data Collection Platform

    FCA announced that 50% firms have started using the new data collection platform RegData, which is slated to replace the existing platform known Gabriel.

    January 20, 2021 WebPage Regulatory News
    News

    Bundesbank Publishes Derivation Rules for Reporting by Banks

    Bundesbank published Version 5.0 of the derivation rules for completeness check at the form level, with respect to the data quality of the European harmonized reporting system.

    January 19, 2021 WebPage Regulatory News
    News

    FED Revises Capital Planning and Stress Testing Requirements for Banks

    FED finalized a rule that updates capital planning requirements to reflect the new framework from 2019 that sorts large banks into categories, with requirements that are tailored to the risks of each category.

    January 19, 2021 WebPage Regulatory News
    News

    ECB Releases Results of Bank Lending Survey for Fourth Quarter of 2020

    ECB published results of the quarterly lending survey conducted on 143 banks in the euro area.

    January 19, 2021 WebPage Regulatory News
    News

    ESAs Publish Reporting Templates for Financial Conglomerates

    ESAs published the final draft implementing technical standards on reporting of intra-group transactions and risk concentration of financial conglomerates subject to the supplementary supervision in EU.

    January 18, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 6484