Contributed By Winston & Strawn London LLP
The regulation of non-bank lending, if it occurs, has the capacity to significantly affect the market. It is unlikely that regulators would wish to damage the investment which comes from this area and most European jurisdictions have been introducing rules to encourage non-bank lending. However, previously proposed regulations and regulations that can be seen worldwide (eg, universal lender licensing) could have a significant negative impact if introduced to the UK. There are initiatives designed to encourage SME lending and promote fairness in this section of the market, in a similar way to consumer protection.
Grumbles about the tax benefits of highly leveraged structures seem to be growing once more, with the potential for limits to be imposed on interest deductibility.
Following regulatory and academic recommendations for LIBOR reform, the UK Financial Conduct Authority (FCA) announced in 2017 that LIBOR would be replaced by alternative risk-free benchmark rates by 2021. Currently, work continues on developing alternative measures of short-term bank funding costs which would reform and replace the survey-based LIBOR with suitable reference rates for a range of currencies and tenors: SONIA for sterling, SOFR for US dollars, STR for euros, SARON for Swiss francs, and TONAR for Japanese yen.