UK BoE Sterling LIBOR Transition 2021

On Jan. 11, UK BoE advised 2021 is critical year for firms to transition.

  • BoE advised 2021 is critical year for firms to complete transition away from LIBOR.
  • Followed Sep. 2020, FCA issued webpage on advice to firms on LIBOR, see #86399.
  • Followed Dec. 2020, ICE Bch published planned consultation on its intention to cease the publication of all sterling LIBOR settings at the end of 2021, see #92047.
  • LIBOR Overview
  • LIBOR has been embedded in the financial system for many years now and is used to calculate the interest in corporate borrowing, intra-group transfers and derivatives.
  • It is also used in accounting practices, system infrastructure and supporting functions.
  • All of these need to be ready to use alternative reference rates, by the end of 2021.
  • Regulatory Expectations
  • UK BoE and UK FCA have already set out clear expectations for regulated firms to remove their reliance on LIBOR in new business and legacy contracts, where feasible.
  • This is an important, primary way, for market participants to have certainty over the economic terms of their contracts, by actively transitioning them away from LIBOR.
  • UK BoE and UK FCA continue to work closely with firms to secure a smooth transition.
  • In particular, supervisors of regulated firms will expect transition plans to be executed in line with the recommended timelines across sterling and other LIBOR currencies.
  • Senior managers with responsibility for the transition should expect close supervisory engagement on how they ensure their firm’s progress, relative to industry milestones.
  • Working Group
  • In support of this, the working group on sterling risk-free reference rates (Working Group) has published an update to its priorities and roadmap, to help businesses.
  • In particular, Working Group recommends that, from end of Mar. 2021, sterling LIBOR is not used in new lending or other cash products that mature after the end of 2021.
  • Working Group also recommended firms do not initiate new linear derivatives linked to sterling LIBOR after Mar. 2021, apart from for risk management of existing positions.
  • Future Anticipations
  • The Working Group, UK BoE and UK FCA have made clear in future, they anticipate the large majority of all sterling markets will be based on SONIA compounded in arrears.
  • However, in certain specific areas, participants may need access to alternative rates.
  • Effectiveness
  • Feedback to the ICE Bch is required by 17:00 London time, on Jan. 25, 2021.

Regulators UK BoE; UK FCA; UK PRA
Entity Types B/D; Bank; Corp; Exch; Inv Co; SHC
Reference PR 1/11/2021; IBOR
Functions Accounting; Compliance; Financial; Operations; Reporting; Risk; Settlement; Technology; Trading; Treasury
Countries United Kingdom
Products Banking; Corporate; Derivatives; Loan; Securities
Regions EMEA
Rule Type Guidance
Rule Date 1/11/2021
Effective Date 1/25/2021
Rule Id 95210
Linked to
Reg. Last Update 1/11/2021
Report Section UK

Last substantive update on 01/12/2021