On November 18, 2020, the LIBOR administrator ICE Benchmark Administration (IBA) announced that they will consult on their intention to cease publication of GBP, EUR, CHF and JPY LIBOR settings across all tenors. Their announcement also indicated that IBA remain in talks with the FCA, other official sector bodies and panel banks regarding the future of USD LIBOR. On the same date, the FCA announced that they will publish consultations about their proposed amendments to the Benchmarks Regulation that, if passed, will give the FCA enhanced powers to direct methodology changes to critical benchmarks (more information on which can be found in our earlier blog post).
The exclusion of USD LIBOR from the IBA’s consultations may reflect the fact that the dollar market is further behind in its transition efforts, which may be due to the fact that SOFR is a new rate (unlike other replacement rates that have existed for decades). However, IBA have advised that further announcements are to be expected in respect of USD LIBOR, and that market participants should not expect USD LIBOR to continue to be published beyond December 31, 2020.
The FCA’s consultations, published on the assumption that the Financial Services Bill (in which their proposed amendments are included) is passed in its current form, cover:
- how the FCA would use the proposed new power to require continued publication of critical benchmarks on the basis of a changed methodology in certain circumstances; and
- the circumstances in which those powers would potentially become relevant.
Following these consultations, the FCA will set out their approach in Statements of Policy. In their announcement, the FCA advise that they envision using their proposed enhanced powers where:
- LIBOR currency-tenor settings are widely used in outstanding contracts and/or instruments that cannot practicably be transitioned away from the benchmark rate by actions or agreements by or between contract counterparties themselves (i.e. ‘tough legacy’ contracts); and
- using the powers would contribute to protecting consumers or preserving market integrity.
Following the publication of the IBA and FCA’s statements, ISDA published a statement clarifying that neither statement constitutes an Index Cessation Event under the IBOR Fallbacks Supplement or Protocol, and so will not trigger the fallbacks thereunder, nor have any effect on the calculation of the spread adjustment.
Please contact any of the authors of this briefing or your regular McGuireWoods contact if you have questions about, or would like assistance with, the LIBOR transition