Writing on the wall for Libor interbank rate

The UK’S financial watchdog has cast doubt over the future of Libor and urged banks to shift towards alternative reference rates within the next four to five years.

The Financial Conduct Authority (FCA) said it would no longer force banks to submit to Libor from 2021 after a dearth of financial transactions providing data called into question the rate’s relevance.

The London Interbank Offered Rate – or Libor – has been steeped in financial scandal, but remains crucial for calculating the interest rates on household mortgages or loans for some big businesses.

The move comes after Bank of England governor Mark Carney proposed scrapping Libor last week in favour of a widespread adoption of the Sterling Overnight Index Average (Sonia).

In a speech in London, FCA chief executive Andrew Bailey said the underlying market that Libor measures is “no longer sufficiently active”.