This year will be key as BLME (Bank of London and The Middle East) works to prepare for the London Interbank Offered Rate (LIBOR) transition.
Regulators in the UK and around the World have assessed that LIBOR is no longer fit for purpose as a benchmark rate. As such, banks must stop using GBP LIBOR by the end of 2021 and switch to an alternative benchmark rate.
Below we explain the changes and the actions BLME are taking to make the transition for its customers.
Background on the LIBOR transition
LIBOR is the benchmark rate at which banks lend to each other in the ‘short-term money markets’ on an unsecured basis. LIBOR is 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 use 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) require all banks to stop using GBP LIBOR by the end of 2021 as, amongst other things, LIBOR is no longer representative of market conditions and in extreme circumstances, has been unlawfully manipulated.
We are committed to ensuring our customers are not disadvantaged by the move from LIBOR to an alternative rate. 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
As part of our commitment to keep you informed regarding this important change, we are now able to provide you with further information on our progress to date.
BLME wrote to all customers affected by the LIBOR transition in December 2020 and again in February, and June 2021, outlining the plans to replace LIBOR as the benchmark reference rate. To comply with the Prudential Regulation Authority and the Financial Conduct Authority’s guidelines, your facility needs to be updated so that LIBOR is no longer used to calculate future profit amounts from the 1st January 2022 onwards.
What if I want to transition sooner?
BLME customers have the option to change to the Bank of England’s Bank Rate (‘Bank Rate’) before the end of the year. At the present time, this rate is the only alternative benchmark rate we offer.
BLME clients will receive a letter offering the option to request an earlier transition from LIBOR to Bank Rate at any time on or after 1st October 2021. If you wish to request an earlier transition date, please send your request to your BLME relationship manager within 45 days from the date of your offer letter. This will allow us to change the date of transition.
If we do not hear from you after 45 days from date of your offer letter, we will proceed with the Transition in 2022 as set out above.
Please be assured that there is no pressure nor obligation to make any immediate changes.
We will update you periodically regarding the next steps for the LIBOR transition. In the meantime, should you have any questions please do get in contact with your BLME relationship manager.