Andrew Bailey, the Chief Executive of the FCA, gave a speech on the future of the London Interbank Offered Rate (LIBOR) (ie the average of interest rates leading London banks would be charged if they were to borrow from other banks). In his speech Andrew Bailey notes that the underlying market LIBOR is based on is no longer sufficiently active, which raises the question of the sustainability of the LIBOR benchmark.
Therefore, the FCA’s intention is that, subject to the agreement of panel banks, LIBOR be phased out by the end of 2021 and banks have been asked to continue submitting rates until this date. Any alternative reference rate must be “based firmly on transactions”. In April, the Risk Free Rate Working Group selected the reformed Sterling Overnight Index Average (SONIA) as a proposed alternative benchmark.
Contracts and documentation containing references to LIBOR will need to be reviewed and “future-proofed” in due course.