The Association of Corporate Treasurers (ACT) welcomes ICE Benchmarks Administration Limited as the Administrator of LIBOR from Monday 3 February 2014, taking over from BBA LIBOR Limited. The appointment of ICE Benchmarks follows supervisory steps taken by the Financial Services Authority and a new regulatory framework set out in the Wheatley Review, since implemented under the supervision of the Financial Conduct Authority. Colin Tyler, Chief Executive of the ACT commented: "Industrial and commercial companies are extensive users of LIBOR in relation to their financing and risk management and in many commercial contracts too. Continuity in the availability of a reliable LIBOR is important for these companies. The switch to a new Administrator is an important and symbolic step in re-establishing LIBOR credibility in the public mind. We look forward to working with ICE Benchmarks as we have with BBA LIBOR Limited." The ACT has today issued a Briefing Note for non-financial companies on the change of LIBOR Administrator. ---------- Ends ---------------- NOTES TO EDITORS LIBOR 1. LIBOR importance to non-financial companies LIBOR is the established reference rate used by companies in the majority of their short term and floating rate debt and interest rate hedging, and in commercial contracts of many kinds more widely. This can be seen in the recent two largest international bond offerings in which the floating rate component used LIBOR, despite the controversies surrounding LIBOR and the issuers being US corporations (Apple and Verizon). 2. LIBOR type rates have particular advantages for companies. LIBOR brings together components adding up to a bank’s reasonable short-term funding costs, including risk-free rates and other adjustments reflective of the bank’s own credit risk. The judgemental elements of the rates contributed to LIBOR mean that the benchmark can be published even at times of market disruption so the rate is reliably available – the fall-back arrangements in case of unavailability being pretty unacceptable. These are current/forward looking reasons for the importance of LIBOR. Additionally there is an important inheritance from the past which also extends into the future:
The current lack of alternative rates with similar characteristics to LIBOR makes any uncertainty over LIBOR reliability or availability particularly unwelcome. Financing and risk management are not a non-financial company’s main purpose – they are just something that enables the company’s business; part of the plumbing. They are a cost. LIBOR is welcomed because its centralised production is a way of reducing some of that cost for companies as compared to the cost of trying to determine a bank’s cost of funds transaction by transaction. 3. Replacing LIBOR For many purposes, IBOR based rates are not necessarily the most appropriate, even though they may be the most convenient. But for most of the uses made by non-financial companies it is hard to design alternatives. The report of the current study on this sponsored by the Financial Stability Board is awaited with interest. 4. The ACT has contributed to the discussions and arrangements for the review and reform of LIBOR and has had an active involvement as a member, since 2009, of the BBA FX and MM Committee that oversaw LIBOR until the new governance arrangements came in following UK legislation in 2013 and the LIBOR Contributors and Users Group after that. Colin Tyler, Chief Executive of the ACT was a member of the Hogg committee that oversaw the appointment of ICE as the replacement administrator of LIBOR. The ACT’s Policy and Technical Director, John Grout, has been invited to become a member of ICE Benchmarks Limited’s LIBOR Oversight Committee.