LIBOR contractual triggers

An increasing number of contracts referencing LIBOR include a ‘pre-cessation trigger’ that converts the contract to reference a relevant Risk Free Rate (RFR) plus an appropriate spread if the FCA finds that any LIBOR settings are no longer going to be representative of the underlying market the rates seek to measure.

There are a number of reasons[2] why market participants are choosing to adopt arrangements that would remove their dependence on LIBOR from the point that in our judgement the rate is no longer representative. The Alternative Reference Rates Committee in the United States has recommended similar triggers[3] in a variety of contracts.

As the activation of these pre-cessation triggers depends on our potential announcements, it is important that market participants are aware of how these announcements would be made. Similarly, many LIBOR ‘cessation triggers’ are activated by an FCA announcement that LIBOR will cease.  This page explains how we will make the relevant announcements if required, so that these statements are clear, unambiguous, and notice is given at the same time to all market participants.

Due to the agreement we have with LIBOR panel banks to remain on the LIBOR panels until end-2021, we do not expect LIBOR to cease or become non-representative before end-2021.

Markets need to be prepared, however, for potential announcements that some or all LIBOR settings will cease after end-2021, or we find that they are no longer going to be representative, after end-2021. These announcements may be necessary because we are given notice of the departure of panel banks[4].

Announcements could be made before end-2021, even if the cessation or loss of representative status would not occur until the panel banks had left at the end-2021 or another applicable date of panel bank departure thereafter.

For both scenarios, the announcement will:

• be made via the Regulatory News Service[5] (RNS), at the same time as, or very shortly followed by, a posting of a fuller statement on our website
• be clear that it is being made in the awareness that it will engage certain contractual triggers that are activated by pre-cessation or cessation announcements made by us
• be clear about the LIBOR currencies and tenors it relates to
• include the date of cessation, or, if applicable, date from which the relevant LIBOR settings are not going to be representative.