UK Regulators Push For More Action on LIBOR Transition

The Bank of England, U.K. Prudential Regulation Authority, U.K. Financial Conduct Authority and the Working Group on Sterling Risk-Free Reference Rates have published a set of documents outlining priorities and milestones for 2020 on LIBOR transition.

The Working Group has published:
 

• Priorities and 2020 roadmap. This document highlights significant dates and clarifies the actions that market participants are recommended to take to reduce LIBOR exposures and transition to alternative rates. These include: (i) ceasing issuance of cash products linked to sterling LIBOR by end-Q3 2020; (ii) taking steps to demonstrate that compounded SONIA is easily accessible and usable and to facilitate a further shift of volumes from LIBOR to SONIA in derivative markets; (iii) establishing a framework for the transition of legacy LIBOR products, to significantly reduce the stock of LIBOR referencing contracts by Q1 2021; and (iv) considering how best to address “tough legacy” contracts.
• A Statement on use cases of benchmark rates: compounded in arrears, term rate and further alternatives. This describes the Working Group’s views on the types of businesses and clients that should use overnight SONIA (compared to other rates, including LIBOR) and provides guidance on where it may be necessary to use the RFRs.
• A Statement on the progress on the transition of LIBOR referencing legacy bonds to SONIA by way of consent solicitation. This describes the lessons learnt on recent conversions of legacy LIBOR contracts.
• Factsheet entitled, "Calling time on LIBOR: Why you need to act now".

The FCA and PRA have sent a joint letter to senior managers at all major banks and insurers setting out their initial expectations of firms' progress during 2020 to transition from LIBOR to SONIA. In particular, the letter confirms that the regulators support the milestones set by the Working Group (see above) and expect firms' LIBOR transition plans should include the targets in project milestones. Firms should also ensure that management information is available to identify progress. Both the PRA and FCA intend to escalate their engagement with firms on LIBOR transition through their regular supervisory relationships and will review management information and collect data to assess progress.

The FCA and BoE have published a statement encouraging market makers to switch the convention for sterling swaps from LIBOR to SONIA on March 2, 2020. The aim is to assist the transition progress in the derivatives market. The Working Group has included this in their roadmap.

View the Working Group's Priorities and 2020 Roadmap.

View the Working Group's statement on use cases of benchmark rates.

View the Working Group's statement on progress on the transition of LIBOR referencing legacy bonds to SONIA by way of consent solicitation.

View the Working Group's Factsheet.

View the joint FCA/BoE letter on 2020 LIBOR transition progress.

View the joint FCA/BoE statement on the switch from LIBOR to SONIA for interest rate swaps.

View details of the consultation on credit adjustment spread methodologies for fallbacks in cash products referencing GBP LIBOR.

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