FCA Could Act Unilaterally to End LIBOR, says FCA Chief Bailey

Invoking the European Union’s Benchmarks Regulation, Andrew Bailey, Head of the Financial Conduct Authority (FCA) said that the FCA could shut down LIBOR if the number of banks providing quotes falls, Risk.net reports.

With the agreement by banks to support LIBOR ending in 2021, Bailey said, “one way in which the future of LIBOR could unfold is that either the administrator of LIBOR, or we, as supervisor, judges that LIBOR is no longer sufficiently representative, and so no longer satisfies the requirements of the Benchmarks Regulation.” The EU requirement on benchmark regulation came into effect in January 2018 and states that a benchmark, “must be sufficiently representative of the economic reality it intends to measure.”

While some market participants believe that the Ice Benchmark Administration (IBA) has the primary authority to make the determination to discontinue LIBOR as a benchmark, Bailey’s remarks suggest the process could be taken out of the administrator’s hands if the FCA sees fit.

One issue that Bailey may be trying to resolve is that of a potential “zombie” LIBOR scenario, where LIBOR clings to life as a scantly sourced and potentially misleading rate based on quotes from a few panel banks. Emma Vick, IBA’s administration manager, poured cold water on the idea of “zombie” LIBOR.

“The banks really want LIBOR, and I think they’ll stick with it until the alternative rates have the requisite liquidity,” she said. Adding later, “which is to say we think LIBOR will [survive] at least until the middle part of the next decade [under] some sort of voluntary agreement.”

Sandra O’Connor, Chief Regulatory Affairs Officer at JP Morgan, said whatever happens, clarity is needed over what could trigger the end of LIBOR. “There can be nothing vague about this,” she said at the CFTC meeting.

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