|Strategy & Sales|
Market Structure / Regulation,
23 June 2020 16:09
Head of Market Structure & Regulatory Customer Engagement
+44 20 7085 1271
NWM Regulatory Impact
+44 20 76789596
Today the UK Treasury announced they will bring forward legislation to provide the FCA with additional powers to manage the run down of 'tough legacy' contracts referencing LIBOR. This is a big deal.
In practical terms this means the FCA will be able to direct a benchmark administrator to continue to publish a 'synthetic LIBOR rate' once LIBOR itself has been deemed non-representative, but, and this is important, only for use in very limited legacy contexts.
Both the FCA in their announcement and the Treasury were quick to point out that this absolutely does not mean anyone should take their foot off the gas in terms of LIBOR transition ahead of the end of 2021. Everything that can go should go, and the use of the synthetic rate will be tightly limited to legacy contracts for which there is no genuine alternative. New business will all be on the new rates.
You heard it here first...
Back in October last year in LIBOR on the ropes we called for the creation of a term rate to help with tough legacy, though cautioning it should not be used as an excuse by the wider market to avoid adopting the new rates wherever possible.
We welcome this development. It will bring greater comfort around legacy and encourage adoption of the protocol for those that might have been concerned about how hedges would align to tough legacy.
Phil Lloyd, NWM Sales
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