BoE and FCA Outline Next Steps for LIBOR Transition in 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
- BoE Press Release
- FCA Press Release
- Statement on LIBOR to SONIA Switch
- RFRWG Priorities and Other Published Documents
Comment Due Date: February 06, 2020
Keywords: Europe, UK, Banking, Insurance, Securities, Interest Rate Benchmark, LIBOR, SONIA, Risk-Free Rates, FCA, BoE
Previous Article
OJK Releases Its Strategic Policy for 2020Related Articles
EBA Analyzes Impact of Unwind Mechanism of Liquidity Coverage Ratio
EBA published a report analyzing the impact of the unwind mechanism of the liquidity coverage ratio (LCR) for a sample of European banks over a three-year period, from the end of 2016 to the first quarter of 2020.
ECB Outlines Views on Possible Changes to AnaCredit Rule and TLTROs
In response to questions from a member of the European Parliament, the ECB President Christine Lagarde issued a letter clarifying the possibility of amending the AnaCredit Regulation and making targeted longer-term refinancing operations (TLTROs) dependent on the climate-related impact of bank loans.
IASB Begins First Phase of Post-Implementation Review of IFRS 9
IASB started the post-implementation review of the classification and measurement requirements in IFRS 9 on financial instruments and added the review as a project to its work plan.
FSB Report Examines Progress in Resolvability of Systemic Institutions
FSB published a report that examines progress in implementing policy measures to enhance the resolvability of systemically important financial institutions.
EBA Benchmarks National Insolvency Frameworks Across EU
EBA published a report on the benchmarking of national loan enforcement frameworks across 27 EU member states, in response to the call for advice from EC.
FSB Reports Assess Impact of Pandemic on Financial Stability
FSB published a letter from its Chair Randal K. Quarles, along with two reports exploring various aspects of the market turmoil resulting from the COVID-19 event.
RBNZ Consults on Implementation of Capital Review Changes
RBNZ launched a consultation on the details for implementing the final Capital Review decisions announced in December 2019.
IASB Announces Andreas Barckow as the New Chair from July 2021
The Trustees of the IFRS Foundation, which are responsible for the governance and oversight of IASB, have announced the appointment of Dr. Andreas Barckow as the IASB Chair, effective July 2021.
HKMA Consults on Capital Rules for Bank Equity Investments in Funds
HKMA issued a letter to consult the banking industry on a full set of proposed draft amendments to the Banking (Capital) Rules for implementing the Basel standard on capital requirements for banks’ equity investments in funds in Hong Kong.
ESRB Supports Extension of Macro-Prudential Measure by Swedish FSA
ESRB published an opinion assessing the decision of Swedish Financial Supervisory Authority (FSA) to extend the application period of a stricter measure for residential mortgage lending, in accordance with Article 458 of the Capital Requirements Regulation (CRR).
