LONDON- Britain faces a call from banks for legislation to force billions of pounds of financial contracts which still reference the soon-to-be defunct Libor interest rate benchmark to adopt other pricing mechanisms.
Rates compiled by central banks are already replacing the London Interbank Offered Rate (Libor) in an effort to avoid a repeat of attempted manipulation, which led to billions of dollars in fines for some of the world's biggest banks.
"The case for action has been strengthened by the market impact of the COVID-19 pandemic," a paper released on Friday by a taskforce for an industry working group said.
"While the deadline for the market to be ready for the cessation of Libor by the end of 2021 remains the same, there is less time available in practice to meet it," the paper from the working group, which is sponsored by the Bank of England and the Financial Conduct Authority (FCA).
However, the FCA has already warned the financial services industry against expecting legislation in the British parliament, which as well as dealing with Brexit now faces deep recession due to the coronavirus crisis. urn:newsml:reuters.com:*:nL8N2CV4XC
"Libor transition should primarily be achieved by active amendment, as this is the only way for parties to have certainty over their contracts and their economic effects," Rupert Lewis, head of banking litigation at Herbert Smith Freehills, said.
The transition from Libor to the Bank of England's Sonia overnight rate for sterling contracts is underway, but some contracts will be difficult to amend voluntarily, it added.
It proposed legislation that could impose amendments on such "tough legacy" contracts that mature after the end of 2021 and cannot be dealt with in another way.
The working group, whose U.S. counterpart has also proposed a legislative fix, said in its paper that given time constraints work on an official sector solution should begin as soon as possible and should not wait for the U.S. outcome.
(Reporting by Huw Jones; Editing by Alexander Smith) ((firstname.lastname@example.org; +44 207 542 3326; Reuters Messaging: email@example.com))