UK Finance response to Financial Conduct Authority consultation paper CP21/29: Proposed decisions on the use of LIBOR (Articles 23C and 21A BMR)

UK Finance has responded to Financial Conduct Authority's consultation paper CP21/29 on its ?Proposed decisions on the use of LIBOR (Articles 23C and 21A BMR)?. 

The consultation is the latest considering how the FCA exercises the powers granted to it under the Financial Services Act 2021. This powers allow it to facilitate an orderly wind-down of critical benchmarks with LIBOR due to cease in its current form after 2021.  UK Finance's key points in our response are summarised below and the full response can be read via the attachment below. 

  • UK Finance members welcome the clarity provided in this consultation paper and the use of the FCA powers on a broad basis to assist with an orderly wind-down of LIBOR.
  • UK Finance encourages finalisation of the proposed rules as soon as practical in order to give stakeholders as much time as possible for implementation.
  • There is a risk that the broad approach could impact customer decisions and unintentionally impede active transition. This risk could be mitigated by appropriate FCA customer-facing communications and clear regulatory guidance on the expectations of firms beyond 2022.  The industry recognises the official sector's stance that active transition continues to be the preferred route for transition wherever viable.
  • UK Finance members note that the FCA powers relate to contracts under the UK Benchmarks Regulation (?BMR?), and that material additional products such as commercial loans, do not fall directly in the scope of these powers. We ask the FCA to provide clarity on expectation for products both impacted directly under these powers and in relation to those not impacted by these powers.
  • It is important that, while a matter for the UK Parliament, the proposed Critical Benchmarks (References and Administrators? Liability) Bill is on the statute book in good time before the end of 2021.
  • After 2022, there needs to be a clear, timely and orderly approach to any changes in restrictions or discontinuation of tenors.
  • Noting the proposal to cease mandating production of yen LIBOR after 12 months, a holistic approach should be taken when considering the implications on 'tough legacy? contracts in the UK, Japan and elsewhere.
  • Some contracts will be on tenors that do not have a proposed synthetic LIBOR equivalent. Guidance on how these should be approached by firms would be welcome.
  • Firms who have taken action based on information available at the time (noting this consultation was issued after the Working Group on Sterling Risk-Free Reference Rates? Q2/Q3 milestone for active transition) and in line with the overarching push to actively transition, must not be judged retrospectively.
  • International coordination continues to be critical. The implications outside the UK of the FCA's approach to synthetic LIBOR tenors should remain an important consideration.
  • While we support the FCA's proposed prohibition of new USD issuance, we stress the importance of continuing to align to both current and emerging guidance from US authorities on exceptions.
Area of expertise:

22.10.21

Consultation Responses