Edwin Schooling Matter, FCA’s director of markets and wholesale policy, has spoken at ISDA’s event on LIBOR transition. He stressed that the time to act is now, as the next 4-6 months are critical. ISDA is close to finalising its protocol to allow LIBOR-referencing contracts to transform to work on other reference rates, and FCA continues to urge market participants to use the protocol to ensure they are ready for the end of LIBOR.
He said it is widely accepted that the current arrangements in older uncleared derivatives contracts for the end of LIBOR are no longer fit for purpose as they envisage counterparts ringing round banks for quotes – and this creates a huge risk that anyone doing that would be left with a contract that no longer works. He left no doubt that any UK regulated firm that does not sign up to the ISDA protocol, which ISDA has delivered in response to regulatory encouragement, will have to face “serious questions” from regulators.
He moved on to discuss the new powers FCA is to have to require the administrator to change the methodology by which LIBOR is produced – but this will only happen if the administrator can no longer produce a representative rate based on submissions and if other circumstances exist. While FCA welcomes these powers, they are not an alternative to transition. He cited many reasons why firms should want to be in control of their contracts and even hinted that FCA might feel uncomfortable using the power unless there has been a wide take up of the ISDA protocol. That said, he noted the safer path is still to move away from LIBOR now.