“The End is Nigh”: UK FCA Issues Consultations Regarding Expected New Benchmark Powers in Response to ICE Benchmark Announcement; ISDA Issues Related Statement

On November 18, 2020, ICE Benchmark Administration (“IBA”), the authorized administrator of LIBOR regulated by the UK Financial Conduct Authority (“FCA”), announced that it will consult on its intention to cease publication of all tenors of euro, sterling, Swiss franc and yen LIBOR after December 31, 2021, subject to confirmation following IBA’s consultation and any rights of the FCA to compel continued publication by IBA. IBA is still in discussions with the FCA, official sector bodies, and panel banks regarding the future of US Dollar LIBOR.

Concurrent with IBA’s announcement, the FCA issued several consultations regarding its proposed policies in relation to exercising the proposed expanded powers of the FCA under the Financial Services Bill[1] to ensure an orderly wind down of LIBOR. The consultations assume that the Financial Services Bill will be passed in its current form.

The FCA also issued an overview that provides related background.

The initial consultations concern Article 23A (designation of a benchmark as unrepresentative) and Article 23D (requiring changes, including in the related methodology, for orderly cessation of designated benchmarks). The FCA provided online response forms that can be used by market participants to submit comments on these consultations by January 18, 2021.[2]

In addition, the FCA stated that it intends to consult on Article 21A (prohibition on new use where administrator to cease providing critical benchmark) and Article 23C (permitting exceptions from the prohibition for use of designated benchmark for “tough legacy” contracts) in the second quarter of 2021, and may issue a consultation for powers under Article 23D (orderly cessation of designated benchmarks).

In response to the announcements of IBA and the FCA, the International Swaps and Derivatives Association (“ISDA”) issued a statement clarifying that “neither of these statements constitute an index cessation event under the IBOR Fallbacks Supplement or the ISDA 2020 IBOR Fallbacks Protocol.” As a result, the statements will not trigger the fallbacks under either the Fallbacks Supplement or Protocol, nor do they affect the calculation of the spread adjustment. Similarly, they do not trigger fallbacks under the 2018 ISDA Benchmarks Supplement or its protocol.

[1] Described in our earlier Perspective “Promised UK ‘Tough Legacy’ Legislation Released; HM Treasury Issues Supporting Policy Statement.”

[2] The online response form for comments on the FCA’s Article 23A consultation is available at https://www.fca.org.uk/benchmark-article-23a-response-form and the online response form for comments on the FCA’s Article 23D consultation is available at https://www.fca.org.uk/benchmark-article-23d-response-form.

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