UK: The End Of LIBOR? A Q&A Of The Central Issues

The London Interbank Offered Rate (LIBOR), is a fundamental reference rate in numerous contracts, both in the financial markets and in commercial contracts. Interest rate swaps, syndicated loans, certain bond rates, and even domestic residential mortgages are frequently pegged to LIBOR, and yet it currently seems under attack. Undermined by a raft of litigation and regulatory fines in relation to its alleged manipulation, the rate has become largely based on judgment due to lack of real transaction data. On 20th July this year, the US Alternative Reference Rates Committee (ARCC) announced that it had identified a broad Treasuries repo financing rate as its preferred alternative reference rate to LIBOR. A week later, on 27th July, Andrew Bailey, the chief executive of the UK's Financial Conduct Authority (FCA) gave a speech in which he questioned the sustainability of the London Interbank Offered Rate (LIBOR).

This Advisory explores the reasons why this decision on LIBOR has been made and the future of an alternative interest rate benchmark.

Why is LIBOR under threat

LIBOR was introduced by the British Bankers' Association in the 1980s as a means of ensuring uniformity of settlement rates across a new breed of financial markets instruments which were developing at the time. It was also a time when there was a significant volume of interbank lending, a market which has seen a massive drop in volumes since the global financial crisis. Consequently, LIBOR has become a largely hypothetical rate since it is often based on judgment rather than real transaction data. In addition, the number of parties submitting LIBOR rates has diminished, causing a reduction in the liquidity of LIBOR.

Even more damage has been done to LIBOR's reputation as a result of certain financial institutions having been found to have been manipulating the rate (with manipulation obviously being much easier when that rate is largely based on judgment rather than hard transaction data). The subsequent global investigations by regulators and criminal investigators into the fraudulent manipulation of the rate, and the ensuing litigation and regulatory fines at the multiple million dollar level, have been widely publicised and hugely damaging to LIBOR's standing.

So is the end of LIBOR imminent?

Not at all. In his speech, Andrew Bailey said that the FCA had agreed with the LIBOR panel banks to continue submitting LIBOR until the end of 2021, so we have four years to go before the banks are allowed to cease providing a LIBOR rate. Steps have already been taken to strengthen LIBOR, including a new governance process. The ARCC's focus has really been on the derivatives market rather than the loan market. So we will continue to see LIBOR in the loan and bond markets for some time to come.

What will replace LIBOR as a reference rate?

There is no single obvious successor to LIBOR as a global reference rate. As we have discussed above, the ARCC has focused on the broad Treasuries repo financing rate, which is the rate of overnight loans having US government debt as their underlying collateral. The Treasuries repo financing rate is calculated on the basis of real transaction data drawn from a large volume of deals in a large and liquid market. However, it is not a complete substitute for LIBOR, because while LIBOR represents the rate at which banks are willing to lend to each other on an unsecured basis for a fixed, medium term period of time, the Treasuries repo refinancing rate represents the cost of secured financing at an overnight rate. Other suggested successor rates include, in the US, the Prime rate and the federal funds rate; while in the UK there has been a focus on SONIA (Sterling Over Night Index Average), which is the weighted average rate of all unsecured overnight sterling transactions brokered in London by the Wholesale Markets Brokers' Association member banks. Again, SONIA is based on real transaction data, and has the advantage of being an unsecured lending rate, but it is also an overnight rate rather than a term rate.

It may well be the case that different markets adopt different reference rates, so that there is no single global successor to LIBOR. And indeed while the derivatives markets seem to be leaning towards the Treasuries repo financing rate, it is difficult to see that, for example, a UK residential mortgage lender will wish to see its rates tied to a US treasury rate.

Why is the FCA taking four years to change LIBOR?

The FCA's intention in committing to require the panel banks to calculate LIBOR for another four years is to allow an orderly transition in the market. The phasing out of LIBOR is a long term project, and it will be critical to both the banks and the regulators to minimise any market disruption during the process. It is also a process at which we are really only at the very beginning, so there are many unknowns: What might a successor rate be? How might it be implemented? What will happen with legacy arrangements? The key point though is that we are not expecting the gradual phasing out of LIBOR to have any dramatic or market disruptive impact on the markets.

What does that mean for the LIBOR interest rate in my documentation?

The FCA has committed to require panel banks to submit LIBOR until the end of 2021, so there will be a LIBOR calculation available until then. After that, how LIBOR is calculated will be a function of the definitions in the underlying documentation, and what (if anything) those definitions say about the fallback position when LIBOR cannot be calculated. Accordingly, in preparation for 2021, it is important to consider a thorough contract review and to assess whether the existing fallback LIBOR definitions are appropriate and whether any revisions are required to those provisions going forwards now that we know that LIBOR may be being phased out.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.