FCA published a statement from the Working Group on Sterling Risk-Free Reference Rates (RFRWG) on the impact of COVID-19 outbreak on the timeline for LIBOR transition plans of firms. As per the new timeline, all new issuance of sterling LIBOR-referencing loan products that expire after the end of 2021 should cease by the end of the first quarter of 2021. The statement also highlights that within sterling cash markets, transition to SONIA in the bond market has been largely completed. In loan markets, lenders will continue work to make SONIA-based products available before the end of the third quarter of 2020 and some borrowers will be ready to take advantage of these alternative products before then.
The RFRWG, FCA, and BoE recognize that it will not be feasible to complete transition away from LIBOR across all new sterling LIBOR-linked loans by the original target of the end-of-the-third quarter of 2020. There will likely be continued use of LIBOR-referencing loan products into the fourth quarter of 2020 in particular, to maintain the smooth flow of credit to the real economy. Taking this into consideration, the RFRWG recommends that:
- By the end of the third quarter of 2020, lenders should be in a position to offer non-LIBOR linked products to their customers.
- After the end of the third quarter of 2020, lenders, working with their borrowers, should include clear contractual arrangements in all new and re-financed LIBOR-referencing loan products to facilitate conversion ahead of the end of 2021, through pre-agreed conversion terms or an agreed process for renegotiation, to SONIA or other alternatives.
- All new issuance of sterling LIBOR-referencing loan products that expire after the end of 2021 should cease by the end of the first quarter of 2021.
Once plans and working arrangements disrupted by the COVID-19 outbreak begin to stabilize, the working group (RFRWG) and its members will intensify communication with customers needing to move away from LIBOR as part of transition.
Related Link: FCA Statement
Keywords: Europe, UK, Banking, Securities, LIBOR, COVID-19, SONIA, IBOR Reform, Benchmark Reform, Interest Rate Reform, BOE, FCA
Next ArticleOJK Amends Regulation on Corporate Governance
The European Banking Authority (EBA) published four draft principles to support supervisory efforts in assessing the representativeness of COVID-19-impacted data for banks using the internal ratings based (IRB) credit risk models.
The European Council and the European Parliament (EP) reached a provisional political agreement on the Corporate Sustainability Reporting Directive (CSRD).
The Prudential Regulation Authority (PRA) launched a consultation (CP6/22) that sets out proposal for a new Supervisory Statement on expectations for management of model risk by banks.
The European Commission (EC) published the Delegated Regulation 2022/954, which amends regulatory technical standards on specification of the calculation of specific and general credit risk adjustments.
The Bank for International Settlements (BIS) Innovation Hub updated its work program, announcing a set of projects across various centers.
The European Insurance and Occupational Pensions Authority (EIOPA) published two consultation papers—one on the supervisory statement on exclusions related to systemic events and the other on the supervisory statement on the management of non-affirmative cyber exposures.
Certain members of the U.S. Senate Committee on Banking, Housing, and Urban Affairs issued a letter to the Securities and Exchange Commission (SEC)
The European Insurance and Occupational Pensions Authority (EIOPA) published a consultation paper on the advice on the review of the securitization prudential framework in Solvency II.
The Prudential Regulation Authority (PRA) issued a statement on PRA buffer adjustment while the Bank of England (BoE) published a notice on the statistical reporting requirements for banks.
The Basel Committee on Banking Supervision (BCBS) issued principles for the effective management and supervision of climate-related financial risks.