Leaving LIBOR – bigger than Brexit?

The monumental scandal of traders allegedly colluding to manipulate the world’s primary interest-rate reference for the benefit of their own financial positions, ultimately set up the UK regulator’s decision two years ago to scrap the beleaguered benchmark. But LIBOR underpins transactions that are cumulatively worth hundreds of trillions, so the conversion to alternatives constitutes a mammoth compliance task. Neasa MacErlean reports.

The transition away from LIBOR might be a lower-profile issue than Brexit or MiFID II but it exceeds each of them, according to the Bank of England. The exposures at risk would “probably be greater” than those in play regarding Brexit, the Bank’s Dave Ramsden, deputy governor for markets and banking, said in a Q&A session in June. It is “a bigger transition” than MiFID II, concurred Andrew Bailey, chief executive of the Financial Conduct Authority, at the same event (‘Last Orders: Calling Time on LIBOR’). And the market agrees. “More than one bank has told me that this potentially requires as much work as Brexit,” says Benedict James, a partner with solicitors Linklaters. “Probably the biggest headache is legacy deals, where the amendment process can seem overwhelming.”