U.K. regulators will get greater powers to phase out LIBOR after efforts to retire the scandal-tainted benchmark faltered due to the coronavirus pandemic.

The Financial Conduct Authority (FCA) will be allowed to compel changes to benchmarks, such as LIBOR, to protect market integrity and consumers, Chancellor Rishi Sunak said in a statement to Parliament. Regulators could also prohibit the use of specific “critical benchmarks,” he added.

“It is in the interests of financial markets and their customers that the pool of contracts referencing LIBOR is shrunk to an irreducible core ahead of LIBOR’s expected cessation, leaving behind only those contracts that genuinely have no or inappropriate alternatives and no realistic ability to be renegotiated or amended,” Sunak said.

The announcement throws cold water on any speculation that the U.K. could delay the final deadline, a move that could have slowed transition plans in the U.S. and other jurisdictions.

LIBOR, which was set daily by banks, was widely used for decades to determine interest rates on trillions of dollars in bonds, loans, and derivatives. Regulators began phasing out the benchmark after European and U.S. banks were found to have manipulated rates to benefit their own portfolios. Yet those efforts stumbled as market participants shifted attention away from the transition and toward surviving the crisis.

The Bank of England in May delayed plans to encourage banks to abandon the benchmark. The same month, U.S. policymakers turned to LIBOR as the benchmark for their $600 billion Main Street Lending Program, which will buy debt from potentially hundreds of companies.

“It has been pretty inevitable for some time that the Treasury was going to step in,” said Claude Brown, a partner at Reed Smith LLP. “Not only are there a significant number of contracts with LIBOR baked in, but the regulator has been sending out mixed messages for a while.”

 


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