Why LIBOR is being phased out and when? (1)

In the aftermath of the global financial crisis of 2007/08, there were widespread allegations of LIBOR manipulation resulting in significant fines being imposed on several international banks and a general loss of confidence amongst market participants in the accuracy and reliability of LIBOR.

In July 2017, the Financial Conduct Authority (FCA) signalled the discontinuation of LIBOR. This kick-started significant activity around the globe to consider the implications and prepare for transition to alternative reference rates.

On 5 March 2021 the FCA announced the dates that all LIBOR settings will either cease to be provided by any administrator or no longer be representative:

Immediately after 31 December 2021, in the case of all sterling, euro, Swiss franc and Japanese yen settings, and the 1-week and 2-month US dollar settings; and
Immediately after 30 June 2023, in the case of the remaining US dollar settings

As a result, the FCA and other regulators are requiring banks to plan for the cessation of LIBOR by the end of 2021 and are encouraging market participants to transition from LIBOR to the use of near risk–free rates (RFRs) that are based on more active overnight lending markets.