On 3 August 2020, the FCA published a speech by Edwin Schooling Latter (Director Markets and Wholesale Policy, FCA) on ‘LIBOR transition – the critical tasks ahead of us in the second half of 2020’.

Key points in the speech include:

  • The 4 to 6 months ahead are arguably the most critical period in the transition away from LIBOR. The time to act is now.
  • LIBOR transition is not being pushed back by the impact of coronavirus.
  • The ISDA plans later this month to finalise the protocol and other documentation through which outstanding derivatives contracts which reference LIBOR can transform, more or less seamlessly, to work on the new risk free rates.
  • Firms need to ensure that they sign the ISDA protocol within the four-month adherence period that the ISDA will offer after the protocol is published.
  • Decisions about what will happen to the various LIBOR settings at the end of 2021 could be announced as soon as the final weeks of this year. There could be announcements by the end of 2020 of cessation of settings at the end of 2021. There could also be announcements that it will no longer be possible to produce LIBOR settings on a representative basis from the end of 2021. Firms need to be prepared for these possibilities.
  • HM Treasury is putting forward legislation to give some additional powers to the FCA to enhance its ability to manage the LIBOR end-game. These powers would kick in only when it becomes clear that the administrator could no longer produce a representative LIBOR rate based on panel bank submissions. However, these powers are not an alternative to transition. For example, the FCA will only use these powers in respect of legacy transactions if doing so is necessary to protect consumers or market integrity. There may be consensus that these interests are better served by simply stopping some LIBOR settings. Firms therefore still need to be ready for life without LIBOR.
  • The ISDA’s protocol is necessary but not sufficient. In its supervisory capacity, the FCA will be expecting firms to be able to show not only that they have robust fallback documentation in place before LIBOR ceases or becomes unrepresentative, but also that they have completed transition for all new business, and have plans that make use of opportunities to reduce legacy LIBOR books before the end comes.