NatWest Corporates and Institutions

LIBOR Risk Disclosure

Please read the following disclosure statement about LIBOR and other related benchmark rates.

LIBOR will be discontinued after 2021

The Financial Conduct Authority (FCA) has stated that it will no longer compel banks to submit the rates used to calculate LIBOR after 2021, which will ultimately [1] lead to the discontinuation of the benchmark. Regulators globally have signalled it is time to start transitioning away from IBORs [2] towards alternative Risk Free Rates.

Disclosure on LIBOR linked transactions

The discontinuation of LIBOR benchmarks will introduce challenges and uncertainties to all market participants that hold financial transactions referencing LIBOR.

Please ensure you are fully aware of the risks associated with holding existing or entering into new transactions linked to benchmarks that will in due course be discontinued.

These risks include but are not limited to:

  • Risk of changes in valuation of contracts referencing LIBOR either due to reduced submissions, discontinuation or amendments to the methodology used to calculate the benchmarks
  • Risk that effectiveness of hedging is undermined as fallbacks may differ across different products
  • Risk of contract frustration unless changes are made to documentation and contracts to incorporate fallback language or to support the transition to new reference rates
  • Operational and system changes required to support new Risk Free Rates

We encourage all market participants to consider their transition plans and recommend they take independent advice on the impact of these changes.

More information on LIBOR transition

There are some useful online resources for LIBOR transition such as the Bank of England website and in US the Alternative Reference Rate Committee (ARRC) site.  See also the ECB site on plans for Euro RFRs. 

Market participants may want to review the guide the Working Group on Sterling Risk Free Rates published last November 2018. This outlines the background to the changes, and the steps firms need to take including understanding exposure, reducing reliance on LIBOR and engaging with transition efforts. More recently ARRC has also released a practical implementation checklist covering similar ground.

We publish regular Insight pieces on LIBOR and other regulatory topics – let us know if you would like to be added to this distribution list at the email address below, or check the information we post on our website.  

To gain a better understanding of the use of daily compounded RFRs see the calculator we have built at www.realisedrate.com   

If you have any queries or would like to discuss this topic further please contact us via email on rfr@natwestmarkets.com or speak to your usual NatWest Markets contact.

1The precise timing of the discontinuation of LIBOR after the end of 2021 is not yet known, depending on various factors such as the number of panel banks continuing to submit in 2022 and potential impact of pre-cessation triggers

2 This disclosure references ‘LIBOR’ mainly, however please note that other IBORs are being reformed globally, and other benchmarks are due to be discontinued (such as EONIA on 3 January 2022)