On 27 July 2017, Andrew Bailey, the CEO of the Financial Conduct Authority (FCA), announced in a speech at Bloomberg that LIBOR is to be phased out by 2021. This note considers what might replace LIBOR, and how this announcement affects loan documents on new and existing transactions.

A change of direction – from reform to replacement

The final report of the Wheatley Review of LIBOR, published in 2012 concluded "that there is a clear case in favour of comprehensively reforming LIBOR, rather than replacing the benchmark". The UK government agreed. As part of its implementation of the Wheatley Review's recommendations, LIBOR became a regulated benchmark in 2013 under the supervision of the FCA. The FCA has clearly now decided that the reforms LIBOR has undergone in recent years do not go far enough. Mr Bailey remarked:

"The underlying market that LIBOR seeks to measure – the market for unsecured wholesale term lending to banks – is no longer sufficiently active."

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