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.
- Feedback to the ICE Bch is required by 17:00 London time, on Jan. 25, 2021.
||UK BoE; UK FCA; UK PRA
||B/D; Bank; Corp; Exch; Inv Co; SHC
||PR 1/11/2021; IBOR
||Accounting; Compliance; Financial; Operations; Reporting; Risk; Settlement; Technology; Trading; Treasury
||Banking; Corporate; Derivatives; Loan; Securities
|Reg. Last Update
Last substantive update on 01/12/2021