IBOR Newsflash: IBA and FCA Announcements on LIBOR Consultations/ CDOR

ICE Benchmark Administration has announced that, based on feedback and information received from the panel banks (and after discussions with the FCA and other official bodies), it will, in the near future, consult on its intention to cease publishing from the end of December 2021 the following LIBOR settings:

• GBP - all tenors (overnight, 1 week, 1, 2, 3, 6 and 12 months).

• EUR - all tenors (overnight, 1 week, 1, 2, 3, 6 and 12 months).

• CHF - all tenors (spot next, 1 week, 1, 2, 3, 6 and 12 months).

• JPY - all tenors (spot next, 1 week, 1, 2, 3, 6 and 12 months).

Discussions involving IBA, the FCA, other official sector bodies and the panel banks are continuing regarding the future of USD LIBOR. The IBA says that it expects to be able to make further announcements regarding USD LIBOR when the discussion process concludes and notes that there is no certainty or guarantee that IBA will be able to publish any USD LIBOR settings after 31 December 2021.

The FCA has also issued a statement in light of ICE's announcement setting out its potential approach to the use of proposed new powers under the Financial Services Bill ("FSB") to ensure an orderly wind down of LIBOR, alongside which it has published consultations about its proposed policy in relation to some of the new powers that would be granted to it under the UK Benchmarks Regulation ("BMR") as amended by the FSB (assuming the Bill is passed in current form).

Neither of the IBA or FCA's statements should be read as announcing that the LIBOR benchmark has ceased, or will cease, to be provided permanently or indefinitely or that it is not, or no longer will be, representative for the purposes of language adopted by ISDA. As such, the announcements do not trigger the fallbacks under the IBOR Fallbacks Supplement, the ISDA 2020 IBOR Fallbacks Protocol or the 2018 ISDA Benchmarks Supplement (in this regard see comments re: CDOR at the bottom of this note). The IBA has said that it expects to make separate announcements on cessation following the outcome of its consultations.

Key aspects of the FCA's proposed approach are as follows (in summary):

• The exercise of the FCA's powers would be subject to a decision by IBA to cease publication of LIBOR as the conclusion of its consultation (as well as the powers proposed in the FSB being enacted, and feedback on the FCA's own policy proposals and consultations).

• Following its consultations, the FCA will set out its approach in published Statements of Policy.

• The FCA does not envisage using its powers where:  

  • critical benchmarks (such as LIBOR currency-tenor settings) are little used;
  • the contracts referencing the benchmark can practicably be amended by contractual counterparties without FCA intervention;
  • using the powers would not be necessary to protect consumers or market integrity; or
  • appropriate inputs are not available.

• If the FCA applies its proposed policy, the FCA considers there would be a case for using its powers to change the LIBOR methodology where:

  • LIBOR currency-tenor settings are widely used in outstanding contracts; and/or
  • instruments that cannot practicably be transitioned away from the benchmark rate by actions or agreements by or between contract counterparties themselves (ie 'tough legacy'); and
  • using the powers would contribute to protecting consumers or preserving market integrity.

• On the basis of the policy proposed and currently available evidence, in the FCA's view it appears unlikely that the conditions and inputs for the use of its powers to require continued publication of euro and Swiss franc LIBOR will exist at the time these panels are proposed to cease.

• Conversely, the FCA notes that forward-looking SONIA term rates are available and tough legacy contracts exist in significant amounts in the sterling market. As such, the most heavily used sterling currency-tenor settings would seem likely to meet these conditions when publication of GBP LIBOR on the basis of a representative panel is proposed to cease.

• In relation to yen LIBOR, the FCA will continue to assess whether it might be necessary and feasible to use the proposed powers in the case of more heavily used yen settings as transition progresses.

• Although IBA has not yet set out specific proposals in relation to the US$ LIBOR settings, the FCA's policy framework would also be relevant to US$ LIBOR.

Canadian Dollar Offered Rate (CDOR): Refinitiv Announcement of Permanent Cessation of 6-Month and 12-Month CDOR Tenors

On 12 November, Refinitiv Benchmark Services (UK) Limited (the administrator for CDOR) announced that, following public consultation:

• Calculation and publication of the 6-month and 12-month CDOR tenors will cease from 17 May 2021 onwards.

• The last day of publication for the 6-month and 12-month CDOR tenors will be 14 May 2021.

• 1-month, 2-month and 3-month CDOR tenors will not be affected by this action.

• No decision will be taken at this stage regarding the introduction of a delay in the publication of individual contributions to CDOR.

Bloomberg has stated that the "Spread Adjustment Fixing Date" for these affected CDOR tenors (which will be relevant in the context of the ISDA fallbacks mechanism), will be 12 November 2020.

Firms should consider to what extent they have exposure to the affected CDOR tenors within their portfolios and the impact of this announcement.