ICE Benchmark Administration (IBA), the FCA-regulated and authorised administrator of LIBOR, has today announced that it will consult in early December on its intention to cease US$ LIBOR. IBA intends that, subject to confirmation following its consultation, one week and two month US$ LIBOR settings will cease at end-2021, and that the US$ LIBOR panel will cease at end-June 2023.
This follows IBA’s previous announcement to consult on its intention that the euro, sterling, Swiss franc and yen LIBOR panels would cease at end-2021. In response to IBA’s previous announcement, we issued a statement[2] setting out our potential approach to ensure an orderly wind-down of LIBOR.
We welcome and support the extension by panel banks and IBA, together with the proposal to consult on a clear end date to the US$ LIBOR panel, following discussions with the US$ LIBOR panel banks. This will incentivise swift transition, while allowing time to address a significant proportion of the legacy contracts that reference US$ LIBOR.
We also welcome the supervisory guidance[3] in relation to limiting new use of US$ LIBOR after end-2021 from the Federal Reserve Board of Governors, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency. We will coordinate with the US authorities, and relevant authorities in other jurisdictions, to consider whether and, if so, how most appropriately to limit new use of US$ LIBOR, consistent with our objectives of protecting consumers and market integrity.
Under the Financial Services Bill[4] introduced to Parliament on 21 October 2020 to amend the Benchmarks Regulation, we would receive new powers to prohibit some or all new use by supervised entities in the UK of a critical benchmark (such as LIBOR currency-tenor settings) where a benchmark administrator has confirmed its intention that the benchmark will cease. We may exercise this power if we consider doing so protects consumers or market integrity.
We are required to publish a Statement of Policy before exercising this power. We plan to consult in Q2 2021 on our proposed policy approach to the use of the power to prohibit some or all new use. Our exercise of this power will be subject to the Financial Services Bill being enacted by Parliament, feedback to our upcoming policy proposals on how we may use this power, and any subsequent consultations on our decisions to use the power once the policy is finalised.
We would not envisage using this power before end-2021. We will seek views on our proposed policy for using this power in due course. However, we expect our proposals will include consideration of how the exercise of the power could best be coordinated with any measures being taken in other jurisdictions where a benchmark is heavily used, so as to support the overall effectiveness of our policy. Under this approach, we would, for instance, consider how any limitations on new use we apply after end-2021 could be best coordinated with any appropriate measures taken in the United States in the case of US$ LIBOR.
We refer to the proposed policy framework we outlined in our previous statement[2] and will continue to consider evidence and views on whether it would be both necessary and feasible for us to use any proposed new powers under the Financial Services Bill to support any ‘tough legacy’ contracts in the case of more heavily used US$ LIBOR settings as transition progresses.
We encourage market participants which are parties to legacy LIBOR contracts to continue work to convert these contracts or adopt robust fallbacks, for example, the IBOR Fallbacks Protocol produced by the International Swaps and Derivatives Association (ISDA). We urge market participants to reach agreement where feasible to transition away from LIBOR, as this is the only way for parties to have certainty and control over their contractual terms when LIBOR ceases or is no longer representative.
This statement should not be read as announcing that the LIBOR benchmark has ceased, or will cease, to be provided permanently or indefinitely or that it is not, or no longer will be, representative for the purposes of language adopted by ISDA.
4 December 2020 update
On 4 December, ISDA hosted a webinar[5] with the FCA, Federal Reserve Board of Governors and Chairman of the Alternative Reference Rates Committee to discuss the recent announcements on LIBOR, with a particular focus on US$ LIBOR. This includes what the announcements mean for the market and what market participants should do next. A transcript is also available here[6].