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By Huw Jones
LONDON, March 25 (Reuters) - Meeting a target to end the use
of Libor for pricing new loans by September could be difficult
for some firms grappling with coronavirus, Britain's Financial
Conduct Authority (FCA) said on Wednesday.
Libor, or the London Interbank Offered Rate, is an interest
rate benchmark used in contracts worth about $400 trillion
around the world. But the benchmark is being scrapped after
banks were fined billions of dollars for trying to rig it.
The FCA has set Dec. 31, 2021 as the date to end the use of
Libor completely. However, to help achieve this, banks should
stop pricing new loans against Libor by Sept. 30, 2020.
Ending its use is one of the biggest tasks faced by markets
in decades as contracts are switched to alternatives compiled by
central banks in Britain, the United States and the euro zone.
The FCA said it had held talks with the Bank of England and
an industry working group on the impact of coronavirus on ending
the use of Libor.
"The central assumption that firms cannot rely on Libor
being published after the end of 2021 has not changed and should
remain the target date for all firms to meet," the FCA said.
"There has, however, been an impact on the timing of some
aspects of the transition programmes of many firms ... It is
likely to affect some of the interim transition milestones."
Regulators and an industry working group had agreed that new
loans should be priced with Sonia, an overnight interest rate
compiled by the Bank of England, from the third quarter.
The aim is to minimise as far as possible loans being priced
against Libor beyond 2021. A similar milestone for swaps
contracts passed this month.
"Alongside other international authorities, the Bank of
England, FCA and Working Group will continue to monitor and
assess the impact on transition timelines, and will update the
market as soon as possible," the FCA said.
Libor is compiled by banks submitting quotes to an
independent administrator.
Market participants don't expect the 2021 deadline to change
given banks have only agreed to keep submitting quotes until
that date and the use of alternatives will have increased
significantly by then in new contracts.
"Libor transition isn't like other deadlines, as whether
Libor ends at the end of 2021 is dependent on whether panel
banks continue making submissions," said Ann Battle, assistant
general counsel and head of benchmark reform at the
International Swaps and Derivatives Association.
The FCA has said it would not compel banks to submit quotes
after the end of 2021 and that market participants cannot assume
that Libor would continue after then.
(Reporting by Huw Jones; Editing by Carolyn Cohn and Edmund
Blair)
