Libor to cease for most currencies by end of 2021

Libor will formally cease by the end of the year for most currencies, UK regulators said on Friday, a step that will raise the pressure on banks and assets managers to move off the tainted lending benchmark.

The Financial Conduct Authority, which oversees the global benchmarks, said publication of Libor would cease at the end of 2021 for sterling, euro, Swiss franc and Japanese yen, and for one-week and two-month US dollar settings.

The industry has until June 2023 to extricate itself from $200tn of US dollar contracts tied to the benchmark, the FCA confirmed. The decision follows an industry consultation in December led by ICE Benchmark Administration, which compiles and oversees the daily rate.

Global authorities have pushed banks, asset managers and companies to stop using the rate, which measures the cost of unsecured borrowing between banks, by the end of the year in favour of benchmarks based on overnight rates.

Regulators say the benchmark reflects a market that no longer exists. From January banks will no longer be compelled to supply daily numbers that go towards Libor’s calculation.

Scott O’Malia, chief executive of Isda, the industry body co-ordinating changes in the derivatives market, said the FCA’s announcement gave the market important clarity.

“Market participants can now push forward with their transition efforts with a clear timetable in mind, and with the knowledge that viable fallback rates will automatically apply in their outstanding Libor derivatives contracts if transition efforts aren’t complete by the time the various Libor settings cease or become non-representative,” he said.

The FCA had warned it could rule the Libor benchmark as unrepresentative if enough banks stopped supplying data. The regulator said on Friday it did not expect that any Libor settings would become unrepresentative before the new planned end dates.

Take-up for new dollar benchmarks have been slow in part because there are more loans and bonds tied to dollar Libor than any other currency. It is also a new rate, rather than an enhanced existing rate, which has been the case in other currencies.