Changes to LIBOR from End of 2021

Sam Smith and Darragh Finn

On 31 December 2021, the publication of 24 LIBOR settings officially ended, including the following:

  • All euro and Swiss franc LIBOR settings
  • The overnight / spot next, 1-week, 2-month and 12-month sterling and Japanese yen LIBOR settings
  • The 1-week and 2-month US dollar LIBOR settings

The 1, 3 and 6 month sterling and Japanese yen LIBOR settings are Article 23A benchmarks, meaning that they are now permanently unrepresentative of the underlying market which they seek to measure, as the process of a panel of banks providing submissions has now ended.

As of 4 January 2021, the 6 most widely used sterling and Japanese yen settings are being calculated in a way that does not rely on submissions from panel banks, known as 'synthetic' LIBOR.

The FCA published a notice in September 2021 allowing use of these synthetic rates in all legacy contracts (except cleared derivatives). In the sterling, Japanese yen, Swiss franc and euro LIBOR derivative markets, cleared contracts were converted to risk-free rates towards the end of 2021. Most uncleared derivative contracts in these currencies have also started using risk-free rates as of 4 January 2021, under industry-agreed fallback language adopted through the ISDA protocol. 

Synthetic yen LIBOR will cease at the end of 2022, whilst the availability of synthetic sterling LIBOR is not guaranteed beyond 31 December 2022, so firms’ efforts to transition away from it should continue. The FCA is also reminding market participants that new use of synthetic LIBOR is banned.

The remaining 5 US dollar LIBOR settings will continue to be calculated using panel bank submissions until mid-2023. However, new use of US dollar LIBOR is also now banned, with limited exceptions. Where relevant, firms should now focus on converting their legacy US dollar LIBOR contracts by mid-2023. 

Read the FCA announcement here.

Highlights of the FCA’s New Approach in 2021

Thomas Bevan and Warren Radloff

The FCA is continually working to pursue its strategic objectives, while also looking to become a more innovative, adaptive and assertive regulator. Listed below are some of the FCA’s highlights of 2021 that demonstrate this new approach in action. 

Protecting Consumers

The FCA has innovated to better protect consumers in a number of ways, for example by providing information so they can make improved financial decisions. The FCA launched its £11m InvestSmart campaign in October of last year, targeting its ‘don’t get played’ message at younger, higher-risk investors. The campaign saw the FCA release its first TikTok video and Instagram live session.

InvestSmart forms part of the FCA’s new consumer investment strategy, which is designed to give consumers greater confidence to invest and to help them do so safely. The strategy’s measures include exploring changes to make it easier for consumers to invest in straightforward financial products, more assertive action to disrupt investment scams and strengthening rules around financial marketing.

Enhancing the Integrity of the UK’s Financial System

The FCA has continued to act to protect and enhance the integrity of the UK financial system. In December 2021, a large bank was fined £264m in the regulator’s first ever criminal prosecution under anti-money laundering legislation. In total FCA actions has resulted in financial organizations in the UK being fined £568m throughout 2021, including fines of £147m and £63.9m against individual firms. The FCA has also taken action against individuals for insider dealing, non-financial misconduct and carrying out regulated activities without authorization. Beside enforcement cases, the FCA has also varied a firm or individuals’ permissions over 100 times in 2021. 

Promoting Competition 

In rules that took effect from 1 January 2022, the FCA is looking to tackle the loyalty penalty in home and motor insurance. The FCA found the practice of increased renewal prices for existing customers, known as price walking, was distorting the market and limiting competition. The new measures will save consumers £4.2bn over 10 years. 

Read more on the FCA’s new approach in 2021 here.

FCA Published Policy Statements on Climate Related Disclosures

Vishan Singh and Darragh Finn

The FCA published two policy statements, PS 21/23 and PS 21/24 in December 2021. Both Policy Statements are designed to promote better climate-related financial disclosures. The FCA believes that better corporate disclosures will help inform market pricing and support business, risk and capital allocation decisions. According to the FCA, better climate-related disclosures will also help consumers make more informed financial decisions.

The new measures are part of the UK’s wider commitment to net-zero. As part of this commitment, PS 21/23 attempts to implement the recommendations of the Taskforce on Climate-Related Financial Disclosures (TCFD) pertaining to issuers of standard listed shares, or equity shares represented by certificates. These issuers must include a statement in their annual financial reports explaining whether their disclosures meet the TCFD recommendations or explain why they do not. 

The rules in PS 21/24 marks the FCA as the first securities regulator in the world to introduce mandatory TCFD-aligned disclosure requirements for asset managers and asset owners, including life insurers and pension providers. These firms must disclose how they take climate-related risks and opportunities into account in managing investments. They will also have to make disclosures about the climate-related attributes of their products.

The rules took effect from 1 January 2022. Asset managers and asset owners will have a phased implementation, with the rules initially applying to the largest firms and coming into effect for smaller firms one year later.

The FCA will build on their work in the Environmental, Social and Governance (ESG) area, contributing to the implementation of the UK Government’s Roadmap to Sustainable Investing. The regulator will also publish feedback on the discussion chapter in PS 21/23 relating to ESG integration in Capital Markets in the first half of 2022. The full FCA announcement can be read here.

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