British regulators are now calling for LIBOR’s ultimate replacement despite efforts to rehabilitate the global interest rate benchmark in the wake of a market manipulation scandal.

The financial services sector should be planning for a transition to alternative interest rate benchmarks that are based on actual transactions over the next four to five years, said Andrew Bailey, CEO of the U.K.’s Financial Conduct Authority (FCA), in a speech delivered in London on July 27.

The central concern is the lack of underlying data for banks’ LIBOR submissions, Bailey 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? Moreover, panel banks feel understandable discomfort about providing submissions based on judgments with so little actual borrowing activity against which to validate those judgments.”

To date, the FCA has encouraged banks to continue providing LIBOR submissions, but ultimately, Bailey said that an alternative is needed: “In our view, it is not only potentially unsustainable, but also undesirable, for market participants to rely indefinitely on reference rates that do not have active underlying markets to support them.”

Work is underway on several alternative benchmarks, Bailey noted, but the shift away from LIBOR will take time. Indeed, he indicated that regulators are proposing to keep LIBOR going until the end of 2021.

“This date is far enough away significantly to reduce the risks and costs of a more sudden change. By having a date by which transition will need to be complete, however, we give market participants a schedule to plan to, and make it easier for them to engage as many counterparties and LIBOR users as is practicably possible in that planning,” he said. And, by the end of 2021, he suggested, “it would no longer be necessary for the FCA to persuade, or compel, banks to submit to LIBOR.”

So far, the idea of continuing to support LIBOR through the end of 2021 is being supported by the banks that currently submit to LIBOR he noted, but talks are ongoing about how this will work in practice.

“Work must therefore begin in earnest on planning transition to alternative reference rates that are based firmly on transactions,” Bailey concluded. “Panel bank support for current LIBOR until end-2021 will enable a transition that can be planned and can be executed smoothly. The planning and the transition must now begin.”