Are you prepared for LIBOR transition?

June 30, 2020

Can you stay ahead of the race to replace LIBOR?

On 23 June, while acknowledging that Covid-19 had slowed the interim timetable for LIBOR transition, and simultaneously highlighting the urgency of the FCA and Bank of England statements that the market must continue actively transitioning away from LIBOR, the UK government announced its intention to bring forward legislation to amend the UK’s existing regulatory framework for benchmarks. The measures, which the Government will take forward in the forthcoming Financial Services Bill, will give the FCA enhanced powers, sufficient to manage an orderly transition from LIBOR.

This legislation is intended to help manage and direct an orderly wind-down of critical benchmarks such as LIBOR, and, in particular, help deal with the problem identified by the Sterling Risk-Free Rate Working Group of ‘tough legacy’ contracts that cannot transition from LIBOR. Explicitly, the proposed legislation would grant the FCA powers to require an administrator of LIBOR to alter its methodology in calculating the benchmark to protect market integrity and consumers. The changes will also strengthen existing law to prohibit the use of an individual critical benchmark where its representativeness will not be restored while giving the FCA the ability to specify limited continued use in legacy contracts.

The Government emphasised that they will continue to work closely with the  FCA and the Bank of England to encourage market-led transition from LIBOR and to monitor progress.

Although the FCA is required to engage with industry and global counterparts, before exercising its new powers, the market policy team at the FCA has indicated that statements of policy relating to its approach could come as early as November or December this year and that “Market participants need to ready for that”.

For further information on JDX’s LIBOR Accelerator, please contact Mital Tanna or Guy Whitley in our Business Development team, or Charles Post, Katie Morgan and Walter Pytell in Document Digitisation Lifecyle Management and Consulting Services teams.

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