Yes, that is right, in this edition of Regulatory Refreshment we are covering two completely unrelated topics which are (a) the beginning of the Coronavirus outbreak and (b) the end of the London Inter-Bank Offered Rate. The only connection is that in the last month the FCA issued statements on both.
The FCA issued a statement to say that they expect all firms to have contingency plans in place to deal with major events.
They are actively reviewing the contingency plans of a wide range of firms. This includes assessments of operational risks, the ability of firms to continue to operate effectively and the steps firms are taking to serve and support their customers.
They expect firms to take all reasonable steps to meet their regulatory obligations. For example, this could include:
The FCA have said that if firms are able to meet certain standards and undertake their activities from backup sites or with staff working from home, they have no objection to this.
They expect to issue additional statements.
LIBOR is ever-present in the financial landscape as a reference rate in a wide range of wholesale and retail financial products. But on 27 July 2017, Andrew Bailey, the Chief Executive of the UK Financial Conduct Authority (the FCA) announced that the FCA would no longer compel or persuade banks to make submissions to LIBOR as from the end of 2021. This announcement came as a result of the significantly reduced volumes of interbank unsecured term borrowing and longstanding concerns regarding the robustness of LIBOR as a benchmark.
The move away from LIBOR is one of the most significant ever changes in the global financial markets.
In a joint letter a few weeks ago, the Bank of England and the FCA warned the financial services sector over slow paced transitions away from LIBOR-based contracts stating that greater momentum is needed to ensure it can move away completely from LIBOR by the end of 2021.
In a recent letter to CEOs of asset managers the FCA said that firms should (suggested timelines by FCA):
The reference rate is embedded in millions of financial contracts and given the volume of products and processes that will need to change, this will be a critical year for LIBOR transition.
Orderly and timely action is therefore required by firms to actively engage with efforts in the market. A wait-and-see approach would be unwise. MJ Hudson has significant experience across the finance industry and can help you assess your exposure, prioritize risks and assist you navigate the transition process, including issues relating to renegotiation or amendment of contracts and assisting with stakeholder communications on the impact of the changes.
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