BLME is working with its clients to prepare for the London Interbank Offered Rate (LIBOR) to be replaced.

The assessment from regulators in the UK and around the world is that LIBOR is no longer fit for purpose as a benchmark rate. As such UK banks must be fully prepared for the end of Sterling LIBOR by the end of 2021 and be prepared to switch to an alternative benchmark rate.

Below we explain the changes and the actions BLME is taking to make the transition for its business clients.

Background on LIBOR transition

LIBOR, or to give it its full name, the ‘London Interbank Offered Rate’, is the benchmark rate at which banks lend to each other in the short-term money markets on an unsecured basis.  LIBOR is important because it is often the lending rate on which financial agreements with banks’ clients have been based.  As a Sharia’a-compliant bank we do not pay or charge interest.  However, finance agreements between BLME and its clients use LIBOR as part of the profit rate calculation.

The Prudential Regulation Authority and Financial Conduct Authority require all banks to be fully prepared for the end of Sterling LIBOR by the end of 2021 as they believe LIBOR is no longer representative of market conditions and, in extreme circumstances, open to unlawful manipulation.

We are committed to ensuring our clients are not disadvantaged through this process and that a move from LIBOR to an alternative rate should be economically neutral for our clients. We are also committed to achieving this move in good time to meet the UK Regulators’ deadline and expectations. This will require us to take various actions over the coming months.

What it means for you and your business

As part of the transition, clients’ contracts with us which reference LIBOR will need to move to another basis to calculate the cost of your facility.

BLME have been in communication with clients who will be affected by the changes to LIBOR, outlining our plans to replace LIBOR as the reference rate.  We will continue to keep in touch with our clients throughout the LIBOR transition, so that they know well in advance of any actions that might be needed. From 31 March 2021, we will not be financing any new facilities using LIBOR to calculate profit rates.  

In the event that a client’s current finance facility references LIBOR, BLME will work in the coming months to update these facilities so that LIBOR is no longer used to calculate the future financial arrangement. LIBOR could cease to be published at any point between now and the end of this year. The absolute latest date LIBOR will be published is 31 December 2021.

For the time being there is no immediate requirement for our clients to take any action regarding their finance facility. However, clients do have the option to change to the Bank of England’s Bank Rate before the end of the year if they wish. Further information about this rate can be found here. At the present time, this rate is the only alternative rate we are able to offer. We will continue to explore alternative rates, although there is no certainty any additional alternatives will be offered.

Please be assured that there is no pressure nor obligation to make any immediate changes. 

We will continue to update our clients throughout the LIBOR transition. However, if you have any concerns or questions about how the LIBOR transition might affect your current agreement with BLME then please contact your Relationship Manager or email us at info@blme.com.