FCA to be Granted Enhanced Powers to Ensure Orderly Wind-down of Libor Contracts
July 01, 2020
On June 23, 2020, the U.K. Government announced plans to issue a Financial Services Bill that will enhance the regulatory powers of the Financial Conduct Authority (“FCA”) to help manage and direct an orderly wind-down period prior to Libor’s eventual cessation by the end of 2021 in a manner that protects consumers and ensures market integrity.
Also on June 23, the FCA published a statement welcoming the U.K. Government’s announcement,
The U.K. Government and the FCA have both emphasized that, for contracts that do not fall within the narrow pool of “tough legacy” contracts, market participants should continue to actively transition away from Libor by mutual agreement wherever possible through conversion of the benchmark in the contract or insertion of sufficiently robust fallbacks. The FCA further warned that, even if regulatory action to change the methodology enabled by the planned legislation is feasible, parties relying on such action will not have control over its economic terms, and any such change may not precisely replicate the market’s prevailing preferred structures based on RFRs. Scott O’Malia, ISDA’s Chief Executive Officer, also emphasized that the U.K.’s proposed legislation will not impact ISDA’s work on developing new fallbacks for derivatives that reference interbank offered rates, and the timing and content for publishing the 2006 ISDA Definitions and a protocol to incorporate those fallbacks into new and legacy derivatives remain unchanged.