The Bank of England’s Financial Policy Committee (FPC) has published a letter to Senior Management Function holders in regulated firms on the future of LIBOR. In the letter it considers further potential supervisory tools that authorities can use to encourage the reduction in the stock of legacy LIBOR contracts to an absolute minimum before end-2021.
2020 will therefore be a key year for LIBOR transition. To that end the regulators have published a set of targets that they considers all firms should aim to meet in 2020:
- enable a further shift of volumes from LIBOR to SONIA in derivative markets from 2 March 2020;
- cease issuance of cash products linked to sterling LIBOR by the end of Q3 2020; and
- significantly reduce the stock of LIBOR referencing contracts by Q1 2021.
The FCA and PRA plan to step up engagement with firms on LIBOR transition to help meet these targets, and will take an active role in reviewing management information and other data to monitor progress. As a guide, the regulators have said they see action in the following areas as key to delivery, and should feature in firms’ planning from Q1:
- product development;
reviewing infrastructure, including updating loan system capabilities;
- client communications and awareness; and
- updating documentation.