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    BoE and FCA on Updated Priorities and Roadmap for LIBOR Transition

    January 11, 2021

    BoE and FCA announced that the Working Group on Sterling Risk-Free Reference Rates has published an update to the priorities and roadmap for the final year of LIBOR transition to help businesses to finish planning the steps they will need to take in the coming months. The top priority of the Working Group is for markets and their users to be fully prepared for the end of sterling LIBOR by the end of 2021. In addition, the Working Group has recommended that firms no longer initiate new linear derivatives linked to sterling LIBOR after the end of March 2021, other than for risk management of existing positions or where they mature before the end of 2021.

    The Working Group has recommended that, from the end of March 2021, sterling LIBOR should be no longer used in any new lending or other cash products that mature after the end of 2021. All businesses with existing loans in sterling should already have heard from their lenders about the transition and those seeking a new or refinanced loan today should be offered a non-LIBOR alternative. Throughout the remainder of the year, existing contracts linked to sterling LIBOR should be actively transitioned where possible. The Working Group, BoE, and FCA have clarified that, in future, they anticipate that the large majority of sterling markets will be based on SONIA compounded in arrears, to provide the most robust foundation for the overall market structure. However, in certain parts of the market, participants may need access to alternative rates. In this context, the Working Group welcomes the development of term SONIA reference rates (TSRRs), which are beginning to be made available by various providers.

    Alongside this, the Working Group has engaged closely with the FICC Markets Standards Board (FMSB) to support development of a market standard for appropriately limited use of term SONIA reference rates, consistent with the objectives and existing recommendations of the Working Group on use cases of benchmark rates. The proposed FMSB standard is under review by key stakeholders during January and is expected to be released for public comment in February. BoE and FCA continue to work closely with firms to secure a smooth transition. In particular, supervisors of regulated firms will continue to expect transition plans to be executed in line with industry-recommended timelines across sterling and other LIBOR currencies. Senior managers with responsibility for the transition should expect close supervisory engagement on how they are ensuring their firm’s progress relative to industry milestones.

     

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    Keywords: Europe, UK, Banking, Securities, LIBOR, LIBOR Transition, Interest Rate Benchmark, SONIA, Risk-Free Rates, BoE, FCA

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