FCA update – LIBOR transition – critical actions to take during 2020

FCA update – LIBOR transition – critical actions to take during 2020

Background

• On 3 August 2020, the FCA published the text of a speech given on 14 July by Edwin Schooling Latter, Director Markets and Wholesale Policy at the FCA
• Speech was given at a webinar hosted by the International Swaps and Derivatives Association (ISDA) on “The Latest in LIBOR Transition, The Path Forward”
• The weblink to the speech is https://www.fca.org.uk/news/speeches/libor-transition-critical-tasks-ahead-us-second-half-2020
• The four to six months ahead [from July 2020] are arguably the most critical period in the transition away from LIBOR. The time to act is now.   Firms must prepare.
• ISDA is increasingly close to finalising the protocol and other documentation through which outstanding derivatives contracts which reference LIBOR can transform, more or less seamlessly, to work on the new RFRs
• The FCA has repeatedly urged market participants from all sectors – sell side, buy side, non-financial – to ensure they are ready for the end of LIBOR by adhering to the protocol that ISDA is producing

Impacts

LIBOR – the critical benchmark referenced in so many swaps and other derivatives contracts, is being replaced by risk-free-rates (RFRs), chosen by the market.

LIBOR will continue to be published until the end of 2021 but firms must act immediately.   The need to act on LIBOR transition NOT been pushed back by the impact of Covid-19.

Under the Benchmark Regulation (Article 28(2), it is a regulatory requirement for supervised firms to have a plan for cessation or material change in a benchmark like LIBOR.   As a matter of policy, the FCA considers that signing the protocol meets that requirement for firms.

Timeline with relevant dates to be logged on regulatory calendar

• Firms must be actively planning for LIBOR cessation by 30 September 2020.

Next steps

All firms must ensure that they have signed the protocol within the Benchmark Regulation within the four-month adherence period that ISDA will offer after the protocol is published during the summer of 2020.

Refer to the full FCA speech and other related FCA guidance.   Firms should also speak to their normal supervisory contacts at the FCA to get more information on related topics.