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
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