Featured Product

    FCA Answers Questions on Conduct Risk During LIBOR Transition

    November 21, 2019

    FCA published answers to questions related to its core expectations from firms during the transition away from London Inter-bank Offered Rate (LIBOR). During FCA's discussions with industry, including the Working Group on Sterling Risk-Free Rate, the firms asked about FCA's core expectations of firms during the transition away from LIBOR. In response, FCA answered key questions on conduct risk arising from LIBOR transition, outlined the expectations that firms have a strategy in place and take necessary action during LIBOR transition and that customers should be treated fairly by following rules and guidance of FCA.

    The FCA supervision of firms’ transition away from LIBOR is focused on firms effectively managing the risks arising from transition, including prudential, operational, and conduct risks. The following are the key takeways form the published questions and answers:

    • Governance and Accountability. FCA states that, for many firms, LIBOR transition will impact the overall business strategy and front-office client engagement. Therefore, potential impact and risks need to be considered and addressed in an appropriately coordinated way across a firm.
    • Replacing LIBOR with alternative rates in existing contracts or products. FCA believes that the most effective way to avoid LIBOR-related exposure is not to write new LIBOR-referencing business and to transition to alternative rates, taking into account the considerations on selecting a fair replacement rate.
    • Offering new products with risk-free rates or alternative rates. Firms should aim to provide products that meet customer needs and perform as they are led to expect. The best way to avoid the complications of calculating and explaining fallbacks from LIBOR to replacement rates is to avoid new LIBOR contracts that mature after the end of 2021.
    • Communicating with customers about LIBOR and alternative rates or products. FCA says that it is essential for firms that continue to market, distribute, and/or sell LIBOR products that mature beyond the end of 2021 to fully explain what will happen in the event of LIBOR ending and its effects on the customer.
    • Firms investing on behalf of customers and LIBOR transition. Asset managers must identify the extent of their and their clients’ exposures to LIBOR as a result of LIBOR-referencing instruments in asset portfolios and they must consider how to manage the impact of this transition ahead of the end of 2021.

    These questions and answers apply to firms across various sectors. FCA used sector-specific examples, where relevant, but firms will need to exercise judgment on the impact of LIBOR transition across their business, taking the interests of specific clients and the nature of the firm’s business model into account. LIBOR will end after 2021 and FCA expects firms to take appropriate steps to ensure they can transition to alternative rates ahead of the end of 2021. The firms which can be affected due to this transition includes investment banks, asset and wealth managers, insurers, retail banks, building societies and mortgage lenders, and other intermediaries such as advisers and brokers.

     

    Related Links

    Keywords: Europe, UK, Banking, Insurance, Securities, LIBOR, Risk-Free Rates Q&A, Conduct Risk, Interest Rate Benchmarks, FCA

    Related Articles
    News

    BSP Tackles Aspects of Lending and Islamic, Open & Sustainable Finance

    The Central Bank of the Philippines (BSP) issued communications covering developments related to online lending platforms, open finance framework and roadmap, and on the expected regulations in the area sustainable finance.

    January 16, 2022 WebPage Regulatory News
    News

    US Agencies Issue Regulatory Updates, FDIC Launches Tech Sprint

    The Board of Governors of the Federal Reserve System (FED) published the final rule that amends Regulation I to reduce the quarterly reporting burden for member banks by automating the application process for adjusting their subscriptions to the Federal Reserve Bank capital stock, except in the context of mergers.

    January 13, 2022 WebPage Regulatory News
    News

    EBA Issues Guide on Bank Resolvability, Consults on Transferability

    The European Banking Authority (EBA) published its assessment of risks through the quarterly Risk Dashboard and the results of the Autumn edition of the Risk Assessment Questionnaire (RAQ).

    January 13, 2022 WebPage Regulatory News
    News

    MFSA Publishes CRD5 Updates and Supervisory Priorities for 2022

    The Malta Financial Services Authority (MFSA) updated the guidelines on supervisory reporting requirements under the reporting framework 3.0.

    January 13, 2022 WebPage Regulatory News
    News

    HKMA Extends Repayment for Trade Facilities, Consults on Crypto-Assets

    The Hong Kong Monetary Authority (HKMA) published a circular, along with the reporting form and instructions, for self-assessment, by authorized institutions, of compliance with the Code of Banking Practice 2021.

    January 12, 2022 WebPage Regulatory News
    News

    FCA Registers Securitization Repositories; PRA Issues 2022 Priorities

    The Financial Conduct Authority (FCA) decided to register European DataWarehouse Ltd and SecRep Limited as securitization repositories under the UK Securitization Regulation, with effect from January 17, 2022.

    January 12, 2022 WebPage Regulatory News
    News

    EC Regulation Sets Out Methods for Measuring K-Factors Under IFR

    The European Commission (EC) published the Delegated Regulation 2022/25, which supplements the Investment Firms Regulation (IFR or Regulation 2019/2033) with respect to the regulatory technical standards specifying the methods for measuring the K-factors referred to in Article 15 of the IFR.

    January 11, 2022 WebPage Regulatory News
    News

    BIS Studies How Platform Models Impact Financial Stability & Inclusion

    The Bank of International Settlements (BIS) published a paper that assesses the ways in which platform-based business models can affect financial inclusion, competition, financial stability and consumer protection.

    January 10, 2022 WebPage Regulatory News
    News

    CBE Issues Additional Measures to Ease Disruptions from Pandemic

    The Central Bank of Egypt (CBE) published a circular with instructions on emergency liquidity assistance to banks that are unable to meet their liquidity requirements.

    January 10, 2022 WebPage Regulatory News
    News

    ESAs Publish List of Financial Conglomerates for 2021

    The European Supervisory Authorities (ESAs) published the list of identified financial conglomerates for 2021.

    January 07, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 7868