13th March 2018

“The transition away from LIBOR will take time, but will be less risky and less expensive if it is planned and orderly rather than unexpected and rushed.”

Andrew Bailey, Chief Executive of the FCA, July 2017

The latest “planned” legislative measure, to phase out LIBOR, came into force on the 1stJanuary 2018 under the guise of the EU Benchmark Regulation (2016/1011) (“BMR“). The BMR intends to restore investor and consumer confidence in the indices used in financial instruments and financial contracts (or to measure the performance of investment funds, and the benchmark setting process itself).

In the UK, the Financial Conduct Authority (“FCA“) is the national authority that implements the BMR. The FCA will aim to ensure that benchmark indices remain free of conflicts of interest and are used suitably and appropriately. The new benchmark indices are to be dynamic and address potential issues at every stage in their production, contribution and use.

The FCA are amending the current regulatory and legislative framework that currently govern benchmark indexes; the FCA Handbook and, secondary legislation, such as, FSMA 2000 and FSMA 2000 (RA) O 2001 (SI (2001/544) (RAO). These will all be streamlined and brought in line with the BMR.

The BMR is the latest step towards the anticipated phasing out of the LIBOR system by 2021 end, with the next “planned” step being the reformation of the Sterling Overnight Index Average (SONIA) benchmark which is to be reformed on 23 April 2018. This reform is led by the Bank of England and is potentially a (nearly) ‘risk-free-rate’ alternative to the current unsustainable LIBOR system.

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