Regulators publish priorities for LIBOR transition in 2020

The Bank of England (BoE), the Financial Conduct Authority (FCA) and the Working Group on Sterling Risk-Free Reference Rates (RFRWG) have each published a set of documents to outline the priorities and milestones for 2020 on LIBOR transition.

As the BoE’s Financial Policy Committee set out in December 2019 – which suggested good progress had been made – firms were also urged to accelerate their efforts to be prepared for the end of LIBOR by the close of 2021.

LIBOR, standing for London Interbank Offered Rate, is the globally accepted key benchmark interest rate that indicates borrowing costs between banks.

The RFRWG has published its priorities as well as an updated roadmap for 2020, highlighting important events and clarifying the actions that market participants should take to reduce their LIBOR exposure, and a transition to alternative rates.

Chair of the RFRWG, Tushar Morzaria, suggested 2020 will be a ‘pivotal year’ in the transition journey, with critical focus on enabling the flow of new business away from sterling LIBOR.

“The RFRWG has therefore defined a key priority to cease issuance of sterling LIBOR cash products by the end of Q3,” Morzaria added.

The BoE and FCA announced they are each supporting the RFRWG objectives, and have jointly published two documents designed to further guide the transitions for firms.

The first document, a joint letter, has been sent to major banks and insurers supervised in the UK, while the second is a statement from the two authorities encouraging market makers to switch the convention for sterling interest rate swaps from LIBOR to SONIA on 2 March 2020.

BoE executive director for markets, Andrew Hauser, said: “I am particularly encouraged by the ambitious goals that market participants have set for themselves this year – including the aim to cease issuance of cash products linked to sterling LIBOR by 2020 Q3 – and by the steps already taken towards those goals. The groundwork has been laid for a decisive shift away from LIBOR in 2020.”

Executive director of strategy and competition at the FCA, Christopher Woolard, added: “In most products, market participants have made impressive progress in moving away from LIBOR. The time has come to draw to a close its remaining use.

“Firms must act now to help meet these targets and ensure a smooth transition to alternative rates by end-2021.”

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