LONDON (Reuters) - Britain said on Tuesday it will give regulators more powers to ensure that the Libor interest rate benchmark is scrapped in an orderly way and on time by the end of 2021.
The London Interbank Offered Rate is used to price contracts worth around $400 trillion (£321 trillion) globally but regulators want to end its use after banks were fined billions of dollars for trying to manipulate the rate.
Derivatives and some loans have already begun switching from Libor to being based on an overnight Sonia rate set by the Bank of England for sterling denominated contracts.
It will not be possible to amend every contract by the end of 2021 and the legislation will give the Financial Conduct Authority (FCA) extra powers to protect users still holding contracts using Libor after the deadline.
“The government recognises ... that legislative steps could help deal with this narrow pool of ‘tough legacy’ contracts that cannot transition from Libor,” Britain’s finance minister Rishi Sunak said in a statement.
The FCA and Bank of England have dismissed talk that market disruption caused by the COVID-19 pandemic will mean a pushback to the end-2021 deadline, though some milestones have been delayed.
Banking industry body UK Finance said the new powers will also help ensure a smoother, quicker and more efficient transition for contracts that can be changed.
The Bank of England and the FCA said the legislation should not be seen as an excuse by market participants to slow efforts to ditch Libor.
“The FCA will publish statements of policy on its approach to potential use of these powers following further engagement with stakeholders in the UK and internationally,” the FCA said in a statement.
The Association of Corporate Treasurers said it takes some of the pressure off a particular “corner” of the market that was distracting attention from the more general transition away from Libor.
Reporting by Huw Jones; Editing by Andy Bruce, Alison Williams and Alexandra Hudson