Financial Conduct Authority Guidance - Transition from LIBOR Jan 08 2020 13:46 languageMoneyScience
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The interest rate benchmark LIBOR is expected to cease after end-2021 and firms are required to transition to alternative rates before this date.
In this article you can find out more about the Financial Conduct Authorties ongoing transition initiatives and the actions they are taking to facilitate the transition.
The London Interbank Offered Rate (LIBOR) is currently produced in 7 tenors (overnight/spot next, one week, one month, two months, three months, six months and 12 months) across 5 currencies. It is based on submissions provided by a panel of 20 banks. These submissions are intended to reflect the interest rate at which banks could borrow money on unsecured terms in wholesale markets. Both the FCA and the Bank of England’s Financial Policy Committee(link is external) (FPC) noted in 2017 that it had become increasingly apparent that the absence of active underlying markets and the scarcity of term unsecured deposit transactions raised serious questions about the future sustainability of the LIBOR benchmarks.
We have received a voluntary agreement from the LIBOR panel banks to continue to submit to LIBOR until end-2021, to enable time for the market to transition away from LIBOR. All banks and other market participants need to have removed dependencies on LIBOR by this date if they are to avoid disruption when publication of LIBOR ceases.
In September 2018, we sent a joint Dear CEO letter with the PRA to major banks and insurers supervised in the UK, asking for the preparations and actions they are taking to manage the transition from LIBOR to alternative interest rate benchmarks. Based on the responses, we have published a feedback statement to help inform firms’ planning for the cessation of LIBOR. We encourage all firms who currently rely on LIBOR to read, reflect and act on the Dear CEO letter and feedback. As well as banks and insurers, the discontinuation of LIBOR will affect many asset managers and other firms if they have not prepared for this event.