LIBOR transition

The Financial Conduct Authority (FCA) has served final notice on UK firms setting out its expectations on the transition away from LIBOR. The FCA has made it clear that the Covid-19 pandemic has not altered its requirement that firms continue their momentum towards a full transition away from LIBOR by the end of 2021.

We are monitoring developments closely, including industry trends and product documentation initiatives, through our LIBOR working group. On this page, we have pulled together information on the actions firms need to take to achieve a successful transition.

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Key things to know

What do firms need to do now?

Complete your LIBOR dependency assessment and establish:

  • Do you have legacy LIBOR clauses?
  • Do your legacy LIBOR clauses have effective fall-back provisions?
  • What would replace LIBOR according to your legacy clauses?
  • Are your legacy LIBOR clauses silent on replacement?
Who are your LIBOR counterparties?

Identify the counterparties, including customers, to your legacy LIBOR clauses and consider:

  • Do your legacy LIBOR clauses create a financial exposure for you or for them?
  • Will they support the use of SONIA or other reference free rates to replace legacy LIBOR rates?
  • Do you have a communications programme in place with your counterparties?
Is LIBOR a feature of products you manufacture or distribute?

The FCA wants firms to stop selling LIBOR referenced products from the start of Q4 2020.

  • Are you on track to transition to SONIA/other RFRs by the end of the year?
  • SONIA and other RFRs are new: how cautious do you need to be when relying on them?
  • Have you verified the legal route to achieving such a change?
  • Can you use existing processes e.g. product literature/prospectus updates to achieve change?
Are your governance and oversight arrangements keeping up with this fast moving topic?
  • Do you have a Senior Manager with oversight of your LIBOR transition?
  • Have you identified the right first line dependencies e.g. individuals responsible for structuring products?
  • Is compliance and second line appropriately resourced and “plugged in” to the transition process?
  • Have you identified any systems and technology dependencies e.g. LIBOR embedded in calculation programmes?
  • Are all affected business functions pulling together and co-ordinating in the face of this exceptional event?

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In depth