The transition from LIBOR: FCA conduct risk and warning and next steps

Over the past couple of weeks, the FCA has released two important communications in the context of the discontinuation of LIBOR, which is expected to cease after end-2021. On 19 November 2019, the FCA published a paper setting out a series of questions and answers for firms about conduct risk during LIBOR transition. Then on 21 November 2019, a speech was made by Edwin Schooling Latter, Director of Markets and Wholesale Policy at the FCA, setting out the next steps in transition from LIBOR from the FCA’s perspective. We consider below what these communications tell the market about the current approach being adopted by the FCA to LIBOR transition, together with the key takeaways in relation to regulatory risks and next steps.   Read more

LIBOR discontinuation – FCA thematic feedback on responses to Dear CEO letter

The FCA and PRA yesterday published a joint statement setting out their key observations from the responses of major banks and insurers in the UK to the Dear CEO letters published in September 2018, which asked for details of the preparations and actions being taken by those firms to manage transition from LIBOR to alternative interest rate benchmarks (SONIA in the UK). The statement confirms that the FCA and PRA have reviewed responses from those firms and provided feedback directly. In addition, given the market-wide nature of the issue, they have decided to publish a number of market-wide observations which they have made in the course of reviewing the responses to the Dear CEO letters. The FCA and PRA identify a number of critical elements which were present in “stronger responses” to the Dear CEO letters, which are summarised below and provide some helpful guidance for other firms affected by LIBOR discontinuation. Read more

LIBOR is being overtaken: Will it be a car crash?

It is clear that, from 2021, LIBOR (at least as we know it) will cease to exist. Given its prevalence as an interest rate benchmark in contracts across multiple markets and jurisdictions, its demise raises questions about the litigation risks which parties to such contracts may face. Herbert Smith Freehills LLP have published an article in the Journal of International Banking Law and Regulation on the types of litigation which may arise, and some of the legal arguments which might be deployed. The full article is available here: LIBOR is being overtaken: Will it be a car crash? (2019) 34 J.I.B.L.R. In our article we explore the sorts of claims which may arise by reference to the four markets which are most affected by the transition from LIBOR: (A) the loan market; (B) the derivatives market; (C) the bond market; and (D) the securitisation market. We also look at the potential regulatory consequences (both to the financial institution and to the applicable senior manager) of failing to put in place appropriate transition plans, and to demonstrate delivery of that plan going forwards. Read more