LIBOR Transition

The UK Financial Conduct Authority (FCA), which is responsible for monitoring the LIBOR (for London Interbank Offered Rate) reference rate, has announced on 27 July 2017 its intention to dismiss banks contributing to LIBOR calculation from their obligation to participate in the LIBOR fixing from 2021 onwards. To support its decision, the FCA argues that LIBOR is based on an insufficient number of underlying transactions and also prone to manipulations.

Therefore, the possible scenario in which no pricing on LIBOR will be available from 2021 onwards, is realistic. As an alternative to LIBOR, national reference interest rates are currently being developed worldwide. The LIBOR transition impacts financial institutions at different levels and should be carefully prepared respectively initiated. The following article summarizes the issues at stake and provides insights into the challenges ahead.