FCA announces Libor mostly ceasing by end of 2021

Pension scheme trustees will need to be aware of any scheme contracts transitioning from Libor to replacement rates after the Financial Conduct Authority (FCA) confirmed that Libor would end at the close of 2021.

It announced that most panel bank submissions for all Libor settings will cease at the end of the year, with representative rates set to no longer be available after all cease in 2023.

A statement from the organisation said sterling, euro, Swiss franc and Japanese yen Libor settings, and the 1-week and 2-month US dollar settings will either cease to be provided by any administrator or no longer be representative from 31 December 2021.

Finally, remaining US dollar settings will cease to be available from 30 June 2023.

Libor is used as a benchmark interest rate in many financial contracts and so the announcement could affect any investors with certain derivative investments or Libor-related contracts, with recommendations to transition these to risk-free-rates contracts.

Law firm Shepherd Wedderburn recommended that trustees of pension schemes speak with their investment managers about Libor, urging them to ascertain the number of contracts that might be affected by its cessation and calling for information about their plans to transition to replacement rates.

It added that it was trustees’ responsibility to ensure that any transition did not result in “an economic detriment” to their scheme.

Meanwhile, the FCA added that, along with the Bank of England, it had made it clear that the lack of an active underlying market makes Libor unsustainable, and unsuitable for the widespread reliance that had been placed upon it, with both having worked closely with market participants and regulatory authorities around the world to ensure that robust alternatives were available.

It added that the announcements confirmed the importance of preparations for all users of Libor, adding that regulated firms should expect further engagement from their supervisors at both the Prudential Regulation Authority and the FCA to ensure that timelines are met.

The FCA said it was also working on reducing the disruption caused by existing Libor contracts.

To this end, the watchdog will launch a consultation in the second quarter on proposed new powers to require continued publication on a ‘synthetic’ basis for some sterling Libor settings and some Japanese yen Libor settings, as well as considering the case for using these powers for some US dollar Libor settings.

It added that any ‘synthetic’ Libor would no longer be representative for the purposes of the benchmarks regulation and would not be for use in new contracts, and would just be for use in legacy contracts.

FCA CEO, Nikhil Rathi, said: “Today’s announcements provide certainty on when the Libor panels will end. Publication of most of the Libor benchmarks will cease at the same time as the panels end. Market participants must now complete their transition plans.”

Bank of England Governor, Andrew Bailey, said: “Today’s announcements mark the final chapter in the process that began in 2017, to remove reliance on unsustainable Libor rates and build a more robust foundation for the financial system. With limited time remaining, my message to firms is clear – act now and complete your transition by the end of 2021.”

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