Libor will not be around forever and banks need to think about alternative - FCA
The UK's financial watchdog has cast doubt over the future of Libor and urged banks to shift towards alternative reference rates within the next four to five years.
The Financial Conduct Authority (FCA) said it would no longer force banks to submit to Libor from 2021 after a dearth of financial transactions providing data called into question the rate's relevance.
The London Interbank Offered Rate - or Libor - has been steeped in financial scandal, but remains crucial for calculating the interest rates on household mortgages or loans for some big businesses.
The move comes after Bank of England governor Mark Carney proposed scrapping Libor last week in favour of a widespread adoption of the Sterling Overnight Index Average (Sonia).
In a speech at Bloomberg's offices in London, FCA chief executive Andrew Bailey said the underlying market that Libor measures is "no longer sufficiently active".
He said: "The absence of active underlying markets raises a serious question about the sustainability of the Libor benchmarks that are based upon these markets.
"If an active market does not exist, how can even the best run benchmark measure it?
He added: "While we have given our full support to encouraging panel banks to continue to contribute and maintaining Libor over recent years, we do not think markets can rely on Libor continuing to be available indefinitely.
"Work must therefore begin in earnest on planning transition to alternative reference rates that are based firmly on transactions."