With the end of LIBOR in sight, on January 11, 2021 the Bank of England, FCA and Working Group on Sterling Risk-Free Reference Rates (the Working Group) published a joint statement on the final countdown to the ceasing of publications of all GBP LIBOR settings at the end of 2021 and an updated 2021 Roadmap to assist business in their preparations for the LIBOR transition. Market participant are encouraged to take the Working Group’s updated roadmap into consideration in the transition plans for 2021.
The joint statement notes that ICE Benchmark Administration, the administrator of LIBOR, is currently consulting on ceasing publication of all GBP LIBOR settings at the end of 2021, and reminds firms that this leaves only a year for them to end their reliance on GBP LIBOR. The Bank of England and FCA reiterate that the main way to ensure that market participants have certainty over their contract terms following the transition is to actively transition them away from LIBOR, and encourage them to do so accordingly.
It is expected that the majority of sterling markets will be based on SONIA compounded in arrears, which the Working Group considers to provide the most robust foundation for market structure. However, they appreciate that certain market participants may need access to alternative rates, and encourage the development of term SONIA reference rates for this purpose, which are beginning to be made available by some providers.
The Bank of England and FCA encourage firms to execute their transition plans in line with the industry-recommended timelines and warn that senior managers with responsibility for the transition should expect close supervisory engagement regarding their firms’ progress.
Updated 2021 Roadmap
In view of the end-2021 deadline for the cessation of GBP-LIBOR, the Working Group has published an updated 2021 Roadmap for the final year of the transition, to enable firms to plan the steps required over the coming months to end their reliance on GBP LIBOR. The 2021 Roadmap details the Working Group’s top priorities to ensure that firms are fully prepared for the end of GBP LIBOR.
According to the 2021 Roadmap, no new GBP-LIBOR loans and bonds expiring after 2021 should be issued after the end of Q1 2021 and all legacy GBP LIBOR loans and bonds expiring after the end of 2021 should be identified and where viable converted, or a fallback option adopted where possible, by the end of Q3 2021. The Working Group has published guidance on key considerations for lenders and borrowers to enable them to meet this end-Q1 2021 deadline. Parties are encouraged to review their infrastructure readiness, product strategy, product design & development, product governance, risk appetite and market readiness to ensure that they do not have any difficulties in issuing loan and bonds that do not reference GBP LIBOR.
With regard to derivatives, the Working Group expects market participants to cease entering into new GBP LIBOR-linked derivatives expiring after 2021 by the end of Q1 2021 (for linear derivatives) and by the end of Q2 2021 (for non-linear derivatives). During Q2/Q3, firms should cease entering into cross-currency derivatives with a GBP LIBOR-linked leg expiring after 2021. Alongside these goals, firms are encouraged to complete active transition across linear and non-linear derivatives wherever viable, and ensure that robust fallbacks are adopted when active transition is not possible.
Market participants should take necessary actions now to ensure they are prepared for the end of LIBOR in advance of the end of 2021 and continue to engage with their counterparties to ensure a smooth transition. There is no time for delay.
Please contact any of the authors of this briefing or your regular McGuireWoods contact if you have questions about, or would like assistance with, the LIBOR transition.