United Kingdom (and EU regulation)

ICE Benchmark Administration to consult on its intention to cease the publication of GBP, EUR, CHF and JPY LIBOR

By Hannah Meakin (UK) and Hannah McAslan (UK) on November 19, 2020 Posted in Benchmarks – IBOR transition, United Kingdom

On 18 November 2020, ICE Benchmark Administration (IBA), the FCA-regulated and authorised administrator of LIBOR, announced that it will consult on its intention that the euro, sterling, Swiss franc and yen LIBOR panels would, subject to confirmation following IBA’s consultation, cease at end-2021.

The FCA has also issued a statement concerning the IBA consultation setting out its potential approach to the use of proposed new powers under the Financial Services Bill to ensure an orderly wind down of LIBOR. The FCA states that under the proposed policy, it would not envisage using its powers where critical benchmarks (such as LIBOR currency-tenor settings) are little used, where the contracts referencing the benchmark can practicably be amended by contractual counterparties without its intervention, or where using the powers would not be necessary to protect consumers or market integrity. Nor would the FCA envisage using the powers where appropriate inputs, as described in the proposed policy, are not available.

The FCA adds that:

“If we adopt and apply our proposed policy to the LIBOR settings, there would be, however, a case for using the proposed new powers to require a change to the LIBOR methodology 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 (often known as ‘tough legacy’ contracts) and
using the powers would contribute to protecting consumers or preserving market integrity

Using the powers would be feasible under our proposed policy if the preferred inputs to a new methodology of the types we have proposed are available to the LIBOR administrator.

On the basis of the policy proposed and currently available evidence, it appears unlikely that the conditions and inputs for use of our powers to require continued publication of euro and Swiss franc LIBOR will exist at the time these panels are proposed to cease.

Conversely, forward-looking SONIA term rates are available and tough legacy contracts exist in significant amounts in the sterling market. So, at least the most heavily used sterling currency-tenor settings would seem likely to meet these conditions when publication of GBP LIBOR on the basis of a representative panel is proposed to cease.

In relation to yen LIBOR, we will continue to assess whether it might be necessary and feasible to use the proposed powers in the case of more heavily used yen settings as transition progresses.

Although IBA has not yet set out specific proposals in relation to the US$ LIBOR settings, this policy framework would also be relevant to US$ LIBOR.”

The ISDA has also issued a statement on the IBA and FCA announcements.

The ISDA states that neither the IBA nor the FCA statements constitute an index cessation event under the IBOR Fallbacks Supplement or the ISDA 2020 IBOR Fallbacks Protocol. Therefore, the statements will not trigger the fallbacks under the supplement or protocol or have any effect on the calculation of the spread. The statements will also not trigger fallbacks under the 2018 ISDA Benchmarks Supplement or its protocol.