Recent announcements indicate one-week and two-month LIBOR are set to cease after December 31, 2021, with balance of LIBOR contracts set to cease after June 30, 2023. On November 30, 2020, the ICE Benchmark Administration[i] (the “IBA”), announced that it expects to consult, starting in early December 2020, on its intention to (i) cease one week and two month US Dollar LIBOR settings immediately following the publication of such rates on December 31, 2021 and (ii) cease publishing the remaining US Dollar LIBOR panel immediately following the publication of such rates on June 30, 2023. In determining to consult on the continuance of certain widely-used US Dollar LIBOR settings after December 31, 2021, the IBA engaged with end-users, panel banks, the UK’s Financial Conduct Authority (the “FCA”) and other official sector bodies.[ii] Up to this point, banks, financial institutions and regulatory authorities were all working under the assumption that all of the US Dollar LIBOR panels would cease being published following December 31, 2021.
While this announcement by the IBA was met with support from the FCA, the Alternative Reference Rate Committee (“ARRC”) and through a joint statement of the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency (collectively, the “Regulators”), these entities made clear the importance that financial institutions continue their transition away from LIBOR. The Regulators noted that the extension of some of the US Dollar LIBOR panels through June of 2023 would allow most legacy US Dollar LIBOR contracts to mature before US Dollar LIBOR ends, however, even given the IBA announcement, a failure to prepare for disruptions to US Dollar LIBOR could undermine financial stability and banks’ safety and soundness. In the statement, the Regulators reiterated that as part of the transition away from US Dollar LIBOR, new financial contracts should, as soon as possible and in any event prior to December 31, 2021, either utilize a non-LIBOR reference rate or include robust fallback language that contains a clearly defined alternative reference rate following LIBOR’s discontinuation. Additionally, the ARRC called the announcement a major milestone noting that, if implemented, there will be a clear framework for ending US Dollar LIBOR by discontinuing new US Dollar LIBOR contracts by the end of 2021, while allowing most legacy contracts to mature before US Dollar LIBOR ends. The FCA in the United Kingdom took the Regulators’ guidance a step further and noted that given the recent Financial Services Bill introduced to Parliament on October 21, 2020, the FCA would receive new powers to prohibit some or all of new uses of critical benchmark rates (like LIBOR) where the administrator of such benchmark has confirmed its intention that the benchmark will end. The FCA further noted that they planned to consult on these new powers in the second quarter of 2021.
Even though the US and UK supervisory authorities are supportive of the IBA consultation, it is important to note that the announcement from the IBA is only of a consultation and that such announcement is not a statement one way or another as to when any given US Dollar LIBOR panel will end. As such, each supervisory entity’s statement reiterates the need for banks and other financial institutions to continue working through their LIBOR transition process.
For more information regarding the transition away from LIBOR, please see What Happened To My Interest Rate? Planning Now To Avoid Value Transfer And Other Risks Upon The Demise Of U.S. Libor, What Happened to My Interest Rate? A Deep Dive into Hardwiring Predictability and Fairness for LIBOR Transition in Loans, Derivatives and other Contracts, The End Of Libor Isn’t Sofr Away and What Happened To My Interest Rate Agencies Confirm SOFR Not Required.
[i] The IBA is the Financial Conduct Authority regulated and authorized administrator of LIBOR,
[ii] This announcement follows the November 18, 2020 announcement from the IBA that it will consult on its intention to cease publication of all GBP, EUR, CHF and JPY LIBOR settings immediately following their publications on December 31, 2021.