LIBOR Frequently Asked Questions

The London Interbank Offered Rate (LIBOR) is calculated from market trades and “expert opinions” via submission from a panel of banks intended to reflect the unsecured rates they will borrow and lend to each other. Many investment funds purchase and hold securities linked to LIBOR that contribute to the fund valuation and returns.

On 5 March 2021, The FCA confirmed that all LIBOR settings will either cease to be provided by any administrator or no longer be representative – this is an industry wide issue:

• 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.
  

Each of the major jurisdictions set out below have identified Alternative Reference Rates (ARRs), also known as Risk Free Rates (RFRs).
A series of National Working Groups are working with the market in each jurisdiction to support the transition to these ARRs.

The Alternative Reference Rates “ARR’s” are all set using observable overnight rate trades and administered by the respective Central Bank (except for Switzerland) and so remove the interbank credit risk of LIBOR reference rates. Some of the ARR’s are secured.

LIBOR rates are unsecured and created by combining both trades and expert observations contributed by a panel of banks reflecting the price they will borrow and lend to each other with a term curve out to 12 months.

Australia predominantly uses Bank Bill Swap Reference Rate (BBSW), which is derived from market rates. However, banks, wealth managers, insurers and corporations that are active in global markets will often have a reference to LIBOR, either directly or indirectly, in their activities.

LIBOR may be referenced directly in securities purchased for investment, included in benchmarks, used in valuation models, included in product descriptions, specified in contracts including those for service providers or for funding vehicles, and included in legal agreements, to name just a few.

We are working with industry groups, regulators and other internal and external stakeholders involved in the LIBOR Transition to understand the potential sequencing and impact of events, noting that this is still an evolving process. In particular, we are closely following developments from regulators and industry bodies as they provide guidance, as well as monitoring markets for changes in market conditions, to make sure that the transition for our clients is as smooth as possible.

AMP Capital has in place an implementation program aimed at:

• Focussing on client centric outcomes
• Ensuring we are operationally ready so that we can continue to competitively deliver our investment management services during and post Transition
• Exercising care and diligence in completing the LIBOR Transition to continue to meet our fiduciary obligations.