Libor Benchmark Will Be Dropped In 2021, FCA Says

Paterniano Del Favero
Luglio 27, 2017

The FCA can now force banks to submit lending rates to the administrators of Libor but will stop doing so within the next five years."This date is far enough away significantly to reduce the risks and costs of a more sudden change", Bailey said.

"Panel bank support for current Libor until end-2021 will enable a transition that can be planned and can be executed smoothly".

Mr. Bailey said that the regulator had agreed with the panel banks to sustain Libor through 2021 in order to transition to new rates.

But Bailey gave no answers for what will replace Libor, and what it means for contracts based on the benchmark.

Bailey added that member banks now feel uncomfortable about submitting daily rates based on minimal borrowing activity.

Mitul Patel, head of interest rates at fund manager Janus Henderson, said in a note following the speech that the transition to Sonia would be "lengthy and difficult".

The scandal resulted in banks paying out billions of pounds in fines, as well as the conviction of multiple bankers.

Libor is used to price US$350trn of financial contracts around the world, ranging from home loans to credit cards to complex derivatives contracts.

Following the scandals over benchmark manipulation at several major banks, the FCA took on oversight of Libor in 2013 and put ICE Benchmark Administration in charge of administering the rate in 2014.

Earlier this month, Bank of England governor Mark Carney said an interest rate benchmark fit for the future be based on actual market transactions and not banks' judgements.

Libor has to be replaced because there are too few transactions underpinning it, Bailey said.

To set Libor, banks submit the rates at which they would be prepared to lend money to one another, on an unsecured basis, in various currencies and at varying maturities.

He said anchoring the rate to transactions has proved harder than expected.

In a speech at Bloomberg's offices in London, FCA chief executive Andrew Bailey said the underlying market that Libor measures is "no longer sufficiently active".

"On the basis of what we can now observe, activity in these markets is limited, and there seems little prospect of these markets becoming substantially more active in the near future".

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