After 2.5 years of discussion on the challenges of LIBOR transition, SONIA liquidity is beginning to grow in the UK market. Yesterday the UK regulators clearly signalled that 'the time to act is now' by setting out the measures they expect firms to take in Q1 2020 to meet the agreed industry LIBOR transition deadlines. Firms should take action to ensure progress otherwise, regulators warn, further supervisory tools could be deployed.
The Bank of England (BoE), the Financial Conduct Authority (FCA) and the Working Group on Sterling Risk-Free Reference Rates (RFRWG) published a number of documents yesterday that emphasis that firms need to accelerate their efforts to prepare for the LIBOR cessations by end-2021.
The key document for firms to read is the joint BoE and FCA letter (PDF 147 KB) to all major UK-supervised banks and insurers. This notes that 2020 will be a key year for the transition, with the BoE and FCA supporting the RFRWG targets for 2020 which are:
In Q1 2020, the FCA and BoE will be looking for clear evidence of firms actively engaging with the wider transition efforts of the market. They have highlighted key action areas for which they expect to see firms planning and tracking in Q1 2020:
The regulators will monitor firms' progress on the LIBOR transition by increasing supervisory engagement and by reviewing management information, in particular how firms' transition plans reflect the RFRWG targets.
The BoE Financial Policy Committee will consider in mid-2020 whether sufficient transition progress is being made by firms. If not, further supervisory tools could be used to reach the FPC's intention 'that sterling LIBOR will cease to exist after the end of 2021. No firm should plan otherwise.'
To support the above actions, firms will find it useful to review the following documents that the RFRWG also published on the 16 January 2020:
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