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

    CFPB Finalizes Rule on Small Business Lending Data Collection

    The Consumer Financial Protection Bureau (CFPB) published a final rule that sets out data collection requirements on small business lending, under section 1071 of the Dodd-Frank Act.

    March 30, 2023 WebPage Regulatory News

    BCBS to Consult on Pillar 3 Climate Risk Disclosures by End of 2023

    The Bank for International Settlements (BIS) published a summary of the recent Basel Committee (BCBS) meetings.

    March 23, 2023 WebPage Regulatory News

    FINMA Approves Merger of Credit Suisse and UBS

    The Swiss Financial Market Supervisory Authority (FINMA) has approved the takeover of Credit Suisse by UBS.

    March 21, 2023 WebPage Regulatory News

    BOE Sets Out Its Thinking on Regulatory Capital and Climate Risks

    The Bank of England (BOE) published a working paper that aims to understand the climate-related disclosures of UK financial institutions.

    March 13, 2023 WebPage Regulatory News

    US Congress Report Examines Data Privacy and Cybersecurity Regulations

    The U.S. Congressional Research Service published a report on banking, data privacy, and cybersecurity regulation.

    March 13, 2023 WebPage Regulatory News

    OSFI Finalizes on Climate Risk Guideline, Issues Other Updates

    The Office of the Superintendent of Financial Institutions (OSFI) is seeking comments, until May 31, 2023, on the draft guideline on culture and behavior risk, with final guideline expected by the end of 2023.

    March 12, 2023 WebPage Regulatory News

    EU to Conduct One-Off Scenario Analysis to Assess Transition Risk

    The European authorities recently made multiple announcements that impact the banking sector.

    March 10, 2023 WebPage Regulatory News

    APRA Assesses Macro-Prudential Policy Settings, Issues Other Updates

    The Australian Prudential Regulation Authority (APRA) published an information paper that assesses its macro-prudential policy settings aimed at promoting stability at a systemic level.

    March 07, 2023 WebPage Regulatory News

    BIS Paper Examines Impact of Greenhouse Gas Emissions on Lending

    BIS issued a paper that investigates the effect of the greenhouse gas, or GHG, emissions of firms on bank loans using bank–firm matched data of Japanese listed firms from 2006 to 2018.

    March 03, 2023 WebPage Regulatory News

    HMT Mulls Alignment of Ring-Fencing and Resolution Regimes for Banks

    The HM Treasury (HMT) is seeking evidence, until May 07, 2023, on practicalities of aligning the ring-fencing and the banking resolution regimes for banks.

    March 02, 2023 WebPage Regulatory News
    RESULTS 1 - 10 OF 8810