The regulator had set a Dec. 31, 2021 deadline for banks to stop using the London Interbank Offered Rate, which has been rocked by scandal. The FCA has told lenders to stop offering new cash-swap products that refer to the benchmark by Sep. 30. The FCA wants to avoid adding to a pile of so-called legacy contracts based on Libor that expire beyond the end of 2021.
The regulator said it is sticking to the deadline. But it acknowledged that the turmoil in financial markets caused by the spread of the coronavirus epidemic is adding new stress to the banking sector.
“There has been an impact on the timing of some aspects of the transition programs of many firms,” the FCA said. “Particularly in segments of the U.K. market that have made less progress in transition and are therefore still more reliant on Libor, such as the loan market, it is likely to affect some of the interim transition milestones."
The watchdog said it has held talks with the Bank of England and an industry working group on the impact of the coronavirus on the Libor phaseout. The regulator said it will continue to assess the impact on transition timelines and will update the market as soon as possible.
“The central assumption that firms cannot rely on Libor being published after the end of 2021 has not changed and should remain the target date for all firms to meet,” the FCA said.
The City regulator has made it clear that it will not force banks to submit for the reference rate, which is used as a benchmark for around $400 trillion worth of financial products globally, after the 2021 deadline. Regulators have been encouraging the switch to the Sterling Overnight Index Average rate, or Sonia, this year.
Libor became a household name after it emerged that it had been manipulated in the late 2000s, and the scandal led to billions of dollars in fines for some of the world’s biggest banks on both sides of the Atlantic. Some traders were handed prison sentences. The new risk-free Sonia rate is meant to be more difficult to manipulate as it is based on transactions and compiled by central banks, including the Bank of England.
Banks have been told to appoint a senior figure under the Senior Managers Regime who will have responsibility for overseeing the transition from Libor and who can be held to account. Meanwhile, the Bank of England has said finance companies that do not move away from Libor by October will be forced to hold more collateral if they want to borrow money.
--Editing by Alyssa Miller.
For a reprint of this article, please contact firstname.lastname@example.org.