US and UK Regulators Publish Further Guidance on LIBOR Cessation

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McNees Wallace & Nurick LLC

On November 30, 2020, the UK and US banking regulators published a series of statements that provide further guidance and milestones for the transition away from the London Inter-Bank Offered Rate (LIBOR) and cessation of LIBOR rate publication.

The ICE Benchmark Administration Limited (ICE), the administrator of LIBOR, has announced that it will consult in early December 2020 on its intention to cease publication of US Dollar (USD) LIBOR for one week and two month tenors following the LIBOR publication on December 31, 2021. The announcement also indicates that the expected cessation date of USD LIBOR for the overnight and one, three, six and 12 month tenors would occur immediately following the LIBOR publication on June 30, 2023, thereby providing a longer period for the more widely used tenors to clear out for existing LIBOR contracts. The ICE has previously announced that the expected termination date for all flavors of LIBOR other than USD LIBOR, such as GBP, EUR, CHF and JPY LIBOR, will occur immediately following the LIBOR publication on December 31, 2021. It should be noted that the ICE’s further consultation on these tentative positions will be subject to feedback through January 2021 and do not yet constitute final action by the ICE or any other applicable banking regulator.

The ICE’s announcement as to USD LIBOR was welcomed and supported by the UK  Financial Conduct Authority (FCA) in a statement also issued on November 30, in which the FCA indicated it will, in consultation with other relevant banking authorities, consider whether and how to exercise its regulatory powers to limit new use of USD LIBOR by regulated entities. Similarly, the US Federal Reserve Board, Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation have endorsed the ICE’s announcement while at the same time strongly encouraging supervised financial institutions to cease entering into new USD LIBOR based contracts as soon as possible and in any event by December 31, 2021 due to safety and soundness risks. The US regulators specifically support the extended deadline of June 2023 for cessation of the indicated USD LIBOR tenors to facilitate an orderly LIBOR transition by allowing many legacy financial contracts to mature prior to such cessation.

So, the path to LIBOR cessation continues as the regulators develop and offer more detailed position statements on important transition milestones. Further definitive guidance should be forthcoming early in 2021 as the ICE and other regulators complete their consultation and review processes. In the meantime, however, it appears that the more widely used tenors of USD LIBOR may enjoy a greater transition period than other LIBOR based indices. Definitely more to come.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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