LIBOR: Time to put your foot down

Andrew Bailey’s most recent speech on LIBOR transition (now in his new capacity as Governor of the Bank of England) likened the transition away from LIBOR to the game of cricket.¹

There is no shortage of other metaphors for this spirited subject matter, and metaphors involving cars are particularly popular. In the latest instalment of the Dechert LIBORcast released earlier this week, we discuss LIBOR transition with Nick Miller and Helen Boyd of the UK Financial Conduct Authority (FCA)² (the FCA heads of asset management and markets respectively). If there is one key takeaway from our session with the FCA it is that, with less than eighteen months to go, now is the time to put your foot down on LIBOR transition plans.

Our discussion with the FCA is much wider than timing and in a short and lively Q&A session, Dechert Partner Sarah Smith and Associate Karen Stretch, both based in the firm’s London office, address key LIBOR issues head-on. The topics include recent developments in the transition process, co-ordination across different financial products and geographies, the markets' perspective and challenges to transition, with a special focus on LIBOR transition in the context of the asset management industry.

Late last week, the European Commission proposed amendments to the EU rules on financial benchmarks set out in the European Benchmarks Regulation.³ While the market contemplates the potential impact of those proposals, the Dechert LIBORcast FCA discussion starts by clarifying the impact of recent initiatives and developments, including the 23 June 2020 statement from the UK’s Chancellor in relation to the forthcoming changes to the UK Benchmarks Regulation. The FCA was unequivocal that these powers would be reserved for those who genuinely cannot amend their LIBOR-linked contracts and that no-one should be structuring their transition plans around reliance on these proposed new powers. In the words of the FCA, “active transition must remain a priority.”

Early 2020 saw the FCA issue several LIBOR related letters, one of which was a Dear CEO letter to asset management firms from Nick Miller’s team.⁴ In the Q&A, Nick stresses that asset managers are key users of LIBOR – his comments include detail around the obligations and responsibilities of asset managers, including in their capacity as agents of their investors, and helpfully he clarifies what the FCA means when it refers to "customers." A central theme running through Nick's and Helen's responses is the need to be proactive; the responses given in the Q&A stress that it is imperative that firms take positive action to manage and mitigate the range of risks that LIBOR transition presents, drawing on the wealth of related resources that are available – they should not be waiting for anything from the FCA.

The discussion also considers the adjusted timeline resulting from the COVID-19 pandemic, with Nick and Helen confirming, should there be any doubt, that achieving a smooth transition away from LIBOR benchmarks by 31 December 2021 remains a key priority for the FCA and other regulators.

Footnotes

1) Libor: Entering the Endgame, Andrew Bailey, Governor of the Bank of England (13 July 2020)

2) The Dechert LIBORcast, A Discussion with the FCA, July 2020. To hear the episode in full, click here. Our previous Dechert LIBORcast recordings with Fitch and ISDA are available here and here. 

3) Press release, 24 July, 2020, Financial Stability: Commission addresses risks of LIBOR cessation

4) FCA, Dear CEO Letter - Asset management firms: prepare now for the end of LIBOR (27 February 2020)