LONDON (Reuters) - Banks must provide concrete evidence to show that they are ending the use of the Libor interest rate benchmark as a price reference in financial contracts, a senior Financial Conduct Authority official said on Thursday.

FILE PHOTO: People walk through the Canary Wharf financial district of London, Britain, December 7, 2018. REUTERS/Simon Dawson/File Photo

Banks were fined about $9 billion in total for trying to rig Libor or the London Interbank Offered Rate, a measure of borrowing costs between banks.

UK regulators want financial contracts that reference Libor to switch to the Bank of England’s Sonia overnight rate, one of the biggest challenges faced by markets in decades.

Edwin Schooling Latter, director of markets and wholesale policy at the FCA, said banks must show they are treating their customers fairly by explaining all the risks of entering into Libor-based contracts that mature after the end of 2021, after which there is no guarantee the interest rate benchmark still be reliable.

Libor is based on quotes from banks and they have told the FCA they will only commit to supplying quotes until the end of 2021, effectively signaling the 50-year old benchmark’s demise.

“We will be looking for confirmation that firms can do their business without a published Libor rate,” Schooling Latter told an event held by law firm Linklaters.

“If there are new contracts being entered into and that mature post 2021, we will want to see clear communication on the uncertainties involved and what will happen in the event that Libor ceases or can no longer be produced on a representative basis,” he said.

“The arrangements on what happens in these circumstances should be fair.”

The FCA has fined financial services firms in the past for not treating customers fairly.

“Libor related commercial and conduct risks may be much more effectively managed by avoiding Libor altogether,” Schooling Latter said.

Globally Libor is used to price contracts, from home loans to credit cards, worth $300 trillion.

The FCA and BoE want banks and other financial firms to whittle down the number of contracts that mature after 2021.

“We will be looking for evidence that these books are being managed down, and we will not allow an increase,” Schooling Latter said.

He said there were no easy “off the shelf answers” for dealing with a “hard legacy” or contracts that would not be migrated to Sonia before the end of 2021.

It was “more or less” possible to eliminate the rump in existing derivatives and loans contracts that reference Libor, but bonds would be harder, he said.

Asked if legislation may be needed for bond market transition, Schooling Latter said debate was needed for this subject to be discussed and appraised.