On July 27, 2017, Andrew Bailey, Chief Executive of the UK Financial Conduct Authority (FCA) gave a speech regarding the future of LIBOR (see Legal Update, FCA Chief Executive Speech on Future of LIBOR). LIBOR has been under increased scrutiny in recent years due to allegations of rate-rigging and manipulation (see Practice Note, What's Market: Eurodollar Rate/LIBOR Interest Rate Provisions).

The FCA believes that insufficient activity in the market for unsecured wholesale term lending to banks raises a serious question about the LIBOR benchmarks that are based upon this market. The FCA pointed out that the current LIBOR process is potentially unsustainable, and it forces market participants to rely indefinitely on reference rates that do not have active underlying markets to support them. It does not believe that it is appropriate to ask or require banks to continue to submit expert judgments indefinitely.

The FCA requests that banks continue to voluntarily sustain LIBOR until the end of 2021. The intention is that by the end of 2021, it will no longer be necessary for the FCA to compel banks to submit to LIBOR.

Any replacement for the current basis for LIBOR will likely be based more firmly on market transactions. Market participants continue to research alternative rates and on June 22, 2017, the Alternative Reference Rates Committee (ARRC) announced its choice of a broad Treasuries repo rate to be used as a benchmark alternative to LIBOR for short-term interest rates in US financial contracts (see Legal Update, Fed Committee Announces GC Repo Rate as LIBOR Alternative for Financial Contracts).

Discussions in the syndicated loan market regarding changes to LIBOR are still in their early stages. As discussed by the Loan Syndications and Trading Association (LSTA) on July 20, 2017, there are various efforts to: