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    Regulatory Agencies in UK and US Issue Updates on LIBOR Transition

    July 21, 2021

    The Bank of England (BoE) and the Financial Conduct Authority (FCA) support and encourage liquidity providers in the LIBOR cross-currency swaps market to adopt new quoting conventions for interdealer trading based on risk-free rates, instead of LIBOR, from September 21, 2021. This is to facilitate a further shift in market liquidity toward risk-free rates, bringing benefits for a wide range of users as they move away from LIBOR. Additionally, on July 13, 2021, the Market Risk Advisory Committee (MRAC) of the U.S. Commodity Futures Trading Commission (CFTC) formally recommended a series of "SOFR First" initiatives in USD markets, beginning with interdealer swap markets on July 26, 2021. The MRAC recommendation also includes a subsequent step to replace use of LIBOR with risk-free rates in cross-currency swaps, identifying a potential date of September 21, 2021.

    To support markets in building the necessary liquidity to meet the set milestones, BoE and FCA have encouraged UK market participants to support the US-led "SOFR First" initiative and have been engaged with authorities across LIBOR jurisdictions to build the necessary consensus around the subsequent initiative for cross-currency swaps in September. Support for this has been also expressed publicly by the U.S. Alternative Reference Rates Committee and the National Working Group on Swiss Franc Reference Rates. Thus, FCA has engaged with UK market participants, including liquidity providers and interdealer brokers, to determine support for a change in the quoting conventions of LIBOR cross-currency swaps in the interdealer market on the proposed date of September 21, 2021. An FCA survey of UK market participants identified strong support for a change in the interdealer quoting convention, which would see risk-free rates rather than LIBOR become the default price from September 21, 2021. Thus, BoE and FCA support and encourage all participants in the LIBOR cross-currency swaps market to take the steps necessary to prepare for and implement these changes to market conventions on and shift liquidity away from LIBOR to risk-free rates. In the period leading up to September 21, 2021, BoE and FCA will continue to engage with market participants and relevant international authorities to determine whether market conditions allow the switch to proceed smoothly.


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    Keywords: Europe, UK, Banking, LIBOR, Risk-Free Rates, SOFR, Interest Rate Benchmarks, Cross Currency Swaps, Benchmark Reforms, FCA, BoE, CFTC

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