LIBOR Lingers… Here’s What Still Needs to Happen

While most LIBOR settings have been published for the last time, work to finalize the LIBOR transition still remains. In a recent press release, the Bank of England, the Financial Conduct Authority (FCA), and the Working Group highlighted achievements in the sterling markets and outlined what must still take place, as well as how the Working Group plans to operate in the future:

  • “The Bank of England, FCA and the Working Group encourage firms to continue to pursue the active transition of legacy sterling LIBOR contracts currently using the temporary synthetic LIBOR.”
  • The Bank of England reports that less than 2% of total sterling LIBOR stock remains and that firms will address the residual exposure.
  • Transition from US dollar LIBOR: Effective at the start of 2022 and in accordance with US supervisory guidance, the FCA is prohibiting its use for certain new contracts. UK supervised entities should have already ceased its use with limited exception. The Bank of England, FCA and the Working Group suggest using alternative rates such as SOFR. (Supervisors are continuing to monitor the progress of the transition for UK regulated entities.)
  • “Continued active conversion of legacy sterling LIBOR-linked bonds and loans that are dependent on temporary synthetic LIBOR”. The Working Group touted its success in transitioning to SONIA across sterling derivative, loan and bond markets. With new objectives supported by the Bank of England, the Working Group also plans to evaluate the implications of non-sterling LIBOR transition in UK markets.

More information on the final days of the LIBOR transition can be found here.

Financial Conduct Authority

Financial Conduct Authority Develops Consumer Duty to Increase Level of Consumer Protection

The Financial Conduct Authority (FCA) is currently establishing plans for a new Consumer Duty to bolster their existing rules and principles in order to enhance consumer protection in retail financial markets. In the FCA’s 2020 Financial Lives survey, 1 in 4 respondents said they “lack confidence in the financial services industry and only 35% of respondents agreed that firms are honest and transparent in their dealings with them.” The Consumer Duty will be a requirement for firms to adhere to and is subject to regulatory enforcement for non-compliance. Its three key elements include:

  1. “The Consumer Principle, which will reflect the overall standards of behaviour the FCA expects from firms. The wording being consulted on is: 'a firm must act in the best interests of retail clients' or 'a firm must act to deliver good outcomes for retail clients'.
  2. Cross-cutting rules which would require 3 key behaviours from firms, which include taking all reasonable steps to avoid foreseeable harm to customers, taking all reasonable steps to enable customers to pursue their financial objectives and to act in good faith.
  3. It will also be underpinned by a suite of rules and guidance that set more detailed expectations for firm conduct in relation to 4 specific outcomes – communications, products and services, customer service and price and value.”

More information on the FCA’s Consumer Duty is available here.

Financial Conduct Authority

Financial Conduct Authority Publishes Feedback on Open Finance

In December of 2019, the FCA published a Call for Input, to “explore the opportunities and risks arising from open finance”, and have now published a Feedback Statement to summarize the responses they received. Some of the feedback highlighted that:

  • Open finance could be a significant undertaking for firms. This is particularly important given the change in operating environment as a result of Covid-19 and its ongoing impact. 
  • The implementation of open finance should be proportionate, phased and driven by consideration of how consumers will use and interact with it. 
  • There is a degree of consensus around the key building blocks needed for open finance to develop in the interests of consumers. These include a legislative and regulatory framework, common standards and an implementation entity. 

The feedback also showed that “open finance could potentially offer significant benefits to consumers, including increased competition, improved advice and improved access to a wider and more innovative range of financial products and services." It could, however, also generate or increase existing risks, therefore fostering questions surrounding data ethics which will require additional regulation to manage risk and boost consumer confidence.

More information on the FCA’s Call for Input on open finance can be found here.

Financial Conduct Authority