The Bank of England (BoE), the Financial Conduct Authority (FCA), and the Working Group on Sterling Risk-Free Reference Rates have set out progress on LIBOR transition in the sterling markets, along with the next steps. The joint press release also offers an update on the future actions and operations of the Working Group.
Below are the key highlights of the recent announcement:
- Progress in sterling markets. As per the authorities, the Sterling markets navigated this transition on time and with minimal disruption, supporting global transition efforts toward alternative risk-free reference rates. Thus, the overnight SONIA, compounded in arrears, is now fully embedded across sterling markets. In December 2021, GBP 13 trillion LIBOR-referencing contracts were converted to SONIA, by successful "central clearing party" (CCP) conversion processes. The implementation of the ISDA IBOR fallbacks saw a further reduction in the legacy stock of LIBOR-linked derivatives. BoE estimates that less than 2% of the total sterling LIBOR legacy stock remains across all asset types and expects that firms have plans to address this residual exposure.
- Next steps. BoE, FCA, and the Working Group on Sterling Risk-Free Reference Rates encourage firms to continue to pursue the active transition of legacy sterling LIBOR contracts using the temporary synthetic LIBOR. During 2022, FCA will seek views on retiring one-month and six-month synthetic sterling LIBOR at the end of 2022 and on when to retire the three-month sterling synthetic LIBOR. BoE, FCA, and the Working Group also encourage transition from USD LIBOR to robust alternative rates such as SOFR.
- Future operations of Working Group. The Working Group concluded at its January meeting that it had met its objective to “catalyze a broad-based transition to SONIA across sterling derivative, loan and bond markets.” Moving forward, the Working Group will focus on finalizing the transition from LIBOR, primarily to support the continued active conversion of legacy sterling LIBOR-linked bonds and loans that are dependent on the temporary synthetic LIBOR and to consider any implications of non-sterling LIBOR transition in UK markets.
Related Link: News Release
Keywords: Europe, UK, Banking, LIBOR, LIBOR Transition, Interest Rate Benchmarks, Synthetic LIBOR, Benchmark Reforms, Basel, Lending, SOFR, ISDA, FCA
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