Corporates need a stable and reliable interest rate benchmark for not only business and financial contracts but also to forecast, manage and account for many business activities. At present, LIBOR, as the world’s most widely used interest rate benchmark, is conventionally used extensively across the corporate environment.
It is important to note that corporates not only use LIBOR benchmarks in financial derivatives for interest rate hedging and fixed/floating rate adjustment, they also use LIBOR extensively in pricing underlying instruments, particularly loans – both externally and, importantly, intra-group.
The responses focus on the development of the use of a risk free rate (RFR) benchmark in the derivatives market, but we observe that the recent announcement by the FCA that they will not continue to support LIBOR beyond the end of 2021 has resulted in a pressing need to expand the work to identify an alternative benchmark beyond the derivatives markets to identify and resolve the issues that such a change to the fundamental operation of the financial markets will cause.
In response to this, the ACT has, where appropriate, expanded responses to the questions, to address some of the issues identified as a result of the recent FCA announcement.