FCA wants banks and businesses to “rapidly” move away from LIBOR

The Financial Conduct Authority (FCA) has warned that the “end-game” for LIBOR interest rates could be “uncertain”, urging banks and businesses to move to alternatives “rapidly”.

The regulator has increased its efforts to speed the transition ahead of a proposed phase out of LIBOR by the end of 2021, as FCA director of markets and wholesale policy Edwin Schooling Latter highlighting that the conversation had transitioned from whether LIBOR would end, but “how it will end”.

Speaking at the International Swaps and Derivatives Association forum, Schooling Latter said: “One thing I cannot provide to you today is certainty about what the end-game for LIBOR will look like. There is uncertainty. That means uncertainty for those who continue to hold or write contracts that reference LIBOR.

“This continued uncertainty is one reason why we continue to urge those still creating new contracts that reference LIBOR, and have a contract life beyond end-2021, to move rapidly instead to the new RFRs whose continued publication beyond that date can be relied upon.”

The Bank of England and the FCA have been urging UK banks and businesses to transition to a new benchmark, the Sterling Overnight Index Average (SONIA).

The regulator highlighted that, on a monthly basis, cleared notional in SONIA swaps is now higher than that for LIBOR.

“The share of cleared sterling swaps referencing the Sterling Overnight Index Average (SONIA) grew to 19% in the second half of 2018, from 11% in the first half of 2016. That’s on a duration-adjusted basis. In notional terms it is a far higher share,” the FCA director of markets and wholesale policy said.

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