FCA chief says LIBOR out by 2022 in favour of transaction-based approach

In a speech at Bloomberg in London, Andrew Bailey examined important questions about the future of LIBOR, and commented that while significant improvements have been made to since April 2013, the absence of active underlying markets raises a serious question about the sustainability of the LIBOR benchmarks that are based upon these markets. He added that panel bank support to sustain LIBOR until end-2021 will enable a transition that can be planned and executed smoothly, and work must begin in earnest on planning the transition to alternative reference rates that are based firmly on transactions.

“We have worked hard to maintain and improve LIBOR.  That work has been aimed towards the destination of interest rate benchmarks that are based on transactions, not on judgements. That offers a better model for those whose data are needed to produce the benchmark. Most importantly, it is also a better model for those that rely on the benchmark.

We do not think we will complete the journey to transaction-based benchmarks if markets continue to rely on LIBOR in its current form. And while we have given our full support to encouraging panel banks to continue to contribute and maintaining LIBOR over recent years, we do not think markets can rely on LIBOR continuing to be available indefinitely.

Work must therefore begin in earnest on planning transition to alternative reference rates that are based firmly on transactions. Panel bank support for current LIBOR until end-2021 will enable a transition that can be planned and can be executed smoothly. The planning and the transition must now begin.”

Read the full speech text

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