HM Treasury has announced that it intends to bring forward legislation to amend the Benchmarks Regulation (BMR) to give the FCA enhanced powers to enable the regulator to manage an orderly wind-down of LIBOR, and, in particular, help deal with the problem of ‘tough legacy’ contracts that genuinely have no or inappropriate alternatives and have no realistic ability to be renegotiated or amended.
The legislation would empower the FCA to direct the administrator of LIBOR to change the benchmark methodology, if doing so would protect consumers and market integrity. This would allow the FCA to stabilise certain LIBOR rates during a wind-down period so that limited use in tough legacy contracts could continue. This would b the ‘synthetic LIBOR’ that has been the subject of debate over recent years
However, it should be remembered that any synthetic LIBOR may not be representative (or the most attractive economic option) and that by far the best outcome for the vast majority of contracts that will mature after the end of 2021, is to transition to an Alternate Reference Rate (ARR) such as SONIA or bank base.
The full statement from HM Treasury is available here: parliament.uk/business/publications/written-questions-answers-statements/written-statement/Commons/2020-06-23/HCWS307/
The FCA has also published a supporting statement available at fca.org.uk/news/statements/fca-statement-planned-amendments-benchmarks-regulation
and a particularly useful set of Q&As at: fca.org.uk/markets/transition-libor/benchmarks-regulation-proposed-new-powers
