In July 2017, the head of the Financial Conduct Authority (the
“FCA”), Andrew Bailey, delivered a
speech in which he questioned the future sustainability of the
London Interbank Offered Rate
(“LIBOR”) and announced that, by the
end of 2021, the FCA will no longer use its powers to persuade or
compel panel banks to quote LIBOR.1 According to the
FCA, LIBOR is unsustainable predominantly because reforms resulting
from the 2012 rate fixing scandal have been unsuccessful in
grounding the rate in transactions that are representative of the
LIBOR market, as opposed to the subjective judgments of panel
banks.2 The phase-out of LIBOR will
affect a wide range of financial contracts which rely on the rate,
including some credit agreements and derivatives contracts. With
just over two years remaining until the phase-out, parties to
financial contracts that reference LIBOR should consider and
prepare for the use of alternative benchmark rates.
