UK Regulator Publishes Findings from LIBOR Review
06/05/2019The U.K. Financial Conduct Authority has published a report summarizing the preparations that firms are making for the market transition away from LIBOR to alternative risk-free rates by the end of 2021. The report is based on feedback from firms in response to the joint Dear CEO letter sent to major banks and insurers by the FCA and the Prudential Regulation Authority, which sought information on the action firms were taking to prepare for the phase-out of LIBOR. The report also includes suggestions for how firms might enhance their preparations.
The FCA's report focuses on the following eight key areas:
- The extent to which firms have identified the nature of their firm's reliance on LIBOR;
- The quantification of LIBOR exposures;
- The adoption of detailed plans for the transition away from LIBOR and appropriate governance over implementing projects;
- The assessment of prudential risks involved in the LIBOR transition and any plans firms have put in place to monitor transition risks;
- The assessment of conduct risks, such as conflicts of interest, for those involved in developing transition plans;
- The use of hypothetical scenarios to develop plans for transition and to mitigate risks;
- The engagement of market participants with the various industry initiatives aimed at preparing for the LIBOR transition; and
- The evidence that some firms are transacting on the basis of risk free rates or incorporating fall back language.
Separately, Dave Ramsden, the Deputy Governor for Markets & Banking at the Bank of England, addressed the LIBOR transition in a recent speech. He acknowledged the progress being made towards establishing SONIA as LIBOR's successor and discussed the FCA's Dear CEO letter, acknowledging that many firms have appointed Senior Managers to oversee the transition away from LIBOR but noting that supervisory engagement is still required to ensure that firms are prepared.
View the Feedback on the FCA and PRA's Dear CEO letter on LIBOR transition.
View the Dear CEO letter on LIBOR transition.
View Dave Ramsden's speech - "Last Orders: Calling Time on LIBOR".
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