By Rob Aberdein and Jeanette Burgess

Following on from the rate-fixing scandal of the mid-2000s, the Financial Conduct Authority (FCA) and the Bank of England have announced plans to phase out the London Interbank Offered Rate (LIBOR) by the end of 2021. This is the benchmark used by many financial institutions to set loan interest rates.

LIBOR is to be replaced, for GBP Sterling, with an updated version of the Sterling Overnight Index Average (SONIA). SONIA, which is based on actual transactions (as opposed to the estimations on which LIBOR is based), is less likely to be open to manipulation. So far, so good. However, worldwide, $ trillions in loans, including UK mortgages and credit card debt, are tied to LIBOR. So, on a practical level, what will the phase-out mean for lenders? The EU Benchmarks Regulation[1] requires lenders to make arrangements to cope with the termination of LIBOR and to ensure that their transactions can withstand its cessation.