In 2021 BLME (Bank of London and The Middle East) worked with our clients to prepare for the London Interbank Offered Rate (LIBOR) transition.
Regulators in the UK and around the World assessed that LIBOR was no longer fit for purpose as a benchmark rate. Banks therefore had until the end of 2021 to stop using GBP LIBOR and switch to an alternative benchmark rate.
That time has now come. From the 1st January 2022, other than for a small number of USD LIBOR settings, the former benchmark lending rate no longer exists.
Background to the LIBOR transition
LIBOR was the benchmark rate at which banks used to lend to each other in the ‘short-term money markets’ on an unsecured basis and was the lending rate on which financial agreements with banks’ customers have often been based.
As a Sharia’a-compliant bank we do not pay or charge interest. However, finance agreements between BLME and its customers used LIBOR as part of the overall profit rate calculation which determines customers’ cost of borrowing.
The Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) required all banks to stop using GBP LIBOR by the end of 2021 as, amongst other things, LIBOR was deemed no longer representative of market conditions and in extreme circumstances, had been unlawfully manipulated.
BLME committed to ensuring our customers were not disadvantaged by the move from LIBOR to an alternative benchmark rate and we committed to achieving the move in good time to meet the UK Regulators’ expectations.
A successful transition for BLME clients
By working closely with our clients, the transition away from LIBOR has been successful. The commitments we made to ensure there was no disadvantage to clients and that transition was achieved by the regulator’s deadline were met.
As alternative to LIBOR, some BLME customers chose to change to the Bank of England’s Bank Rate (‘Bank Rate’) before the end 2021, while others are now using Bank Rate for the first time as their facilities fall due for their periodic rate setting from the start of 2022.
Complying with the Prudential Regulation Authority and the Financial Conduct Authority’s guidelines, all borrowing facilities were updated so that LIBOR was no longer used to calculate future profit amounts from 1st January 2022 onwards.