Securities and Markets

Financial Conduct Authority

LIBOR transition: The critical tasks ahead of us in the second half of 2020 - speech by Edwin Schooling Latter, Director of Markets and Wholesale Policy at the FCA - 3 August 2020

Edwin Schooling Latter (Director of Markets and Wholesale Policy at the FCA) has delivered a speech on the “critical tasks ahead” for the second half of 2020 in respect of transitioning away from using the London interbank offered rate (LIBOR) before its cessation by the end of 2021.

Among other things, Mr Schooling Latter states that:

• the next four to six months is the most critical period in the transition away from LIBOR;
• the International Swaps and Derivatives Association (ISDA) is close to finalising the Protocol (see further below) and other documentation through which outstanding derivatives contracts that reference LIBOR can transform to work on new risk-free rates (RFRs). Firms will need to sign the Protocol within the four-month adherence period that ISDA will offer after the protocol is published this summer;
• the FCA welcomes legislation introduced to give it additional powers to enhance its ability to manage LIBOR transition, particularly in respect of legacy transactions. However, Mr Schooling Latter warns that these powers are not an alternative to transition and that firms still need to be ready for life after LIBOR because the FCA does not view a synthetic LIBOR as a suitable foundation for derivatives markets; and
• ISDA’s Protocol is “necessary but not sufficient”: firms should be able to demonstrate that they have robust fallback documentation in place before LIBOR ceases or becomes unrepresentative. In addition, firms should have completed transition for all new business, and have plans that make use of opportunities to reduce legacy LIBOR books, before cessation.

Speech by Edwin Schooling Latter (Director of Markets and Wholesale Policy at the FCA) on the critical tasks ahead in the second half of 2020 in relation to LIBOR transition

International Swaps and Derivatives Association

IBOR Fallback Protocol - ISDA publishes letters on adherence to the Protocol - 30 July 2020

ISDA has published a letter to the Chairs of Working Groups on alternative RFRs, dated 22 July 2020, on the launch of its interbank offered rate (IBOR) Fallback Protocol, among other things. The Protocol aims to facilitate the inclusion of new IBOR fallback provisions in existing contracts and transactions between counterparties that both adhere to the Protocol.

ISDA states that the IBOR Fallback Protocol and the IBOR Fallback Supplement documentation will be ready by the end of July 2020 and will be launched shortly afterwards. ISDA also explains that it will provide market participants with approximately two weeks’ notice of the official launch date and the effective date of the IBOR Fallback Protocol. During the two-week period, ISDA expects to facilitate a process whereby regulated entities and other key market participants can adhere to the IBOR Fallback Protocol ‘in escrow’ prior to the launch date. ISDA believes that such a process will send a strong message to market participants and result in a higher level of adherence to the Protocol by the end of 2020.

ISDA letter to Working Groups on RFRs on its IBOR Fallback Protocol