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    BoE and FCA Outline Next Steps for LIBOR Transition in 2020

    January 16, 2020

    BoE, FCA, and the Working Group on Sterling Risk-Free Reference Rates (RFRWG) have published a set of documents that outline the LIBOR transition priorities and milestones for 2020. The RFRWG has published a document on the 2020 priorities and milestones, a paper on the use cases of benchmark rates, lessons learned from recent conversions of legacy LIBOR contracts, and a factsheet titled "Calling time on LIBOR: Why you need to act now." Additionally, in December, a consultation was published on the approach to use to determine the credit adjustment spread for inclusion in sterling cash products referencing LIBOR. The comment period for this consultation closes on February 06, 2020.

    This is a critical year for LIBOR transition. As the Financial Policy Committee (FPC) of BoE set out in December 2019, while good progress has been made, firms need to accelerate efforts to ensure they are prepared for LIBOR cessation by the end of 2021. To help achieve this, the RFRWG has published its priorities and an updated roadmap for the year ahead to highlight important events and clarify actions market participants should take to reduce LIBOR exposure and transition to alternative rates, including:

    • Ceasing issuance of cash products linked to sterling LIBOR by the of end the third quarter of 2020
    • Throughout 2020, taking steps that demonstrate that compounded SONIA is easily accessible and usable
    • Taking steps to enable a further shift of volumes from LIBOR to SONIA in derivative markets
    • Establishing a framework for the transition of legacy LIBOR products, to significantly reduce the stock of LIBOR referencing contracts by the first quarter of 2021
    • Considering how best to address issues of “tough legacy” contracts 

    BoE and FCA support these objectives and have published two documents designed to further catalyze transition efforts:

    • First, a joint letter that has been sent to major banks and insurers, supervised in the UK. This letter sets out the initial expectations of FCA and PRA of firms’ transition progress during 2020, including in relation to the targets set by the RFRWG, and highlights the FPC’s close monitoring of the steps being taken.  
    • Second, a statement from BoE and FCA encouraging market makers to switch the convention for sterling interest rate swaps from LIBOR to SONIA on March 02, 2020. This is designed to help progress transition in the derivatives market.  

    These publications, along with an update in December, are a comprehensive suite of materials that support the priorities and milestones of RFRWG.  

    Related Links 

    Comment Due Date: February 06, 2020

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

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