UK Regulators Declare 2020 as "Key Year for [LIBOR] Transition" and Propose Milestones for Transition

In their January 16, 2020, letter to senior management of certain regulated institutions, the Bank of England Prudential Regulation Authority (PRA) and the UK Financial Conduct Authority (FCA) declare 2020 to be a “key year for [LIBOR] transition” and set forth their expectation for transition progress during this year.

While acknowledging that several important transition milestones have been met, they note that “[o]rderly and timely progress requires individual firms to actively engage with the wider transition efforts in the market – both those of the authorities and of industry. We expect to see clear evidence of this engagement from the beginning of Q1 2020.”

The FCA and PRA also endorse the 2020 targets set by the Sterling Risk-Free Reference Rates Working Group (RFRWG) and state that firms should have LIBOR transition plans that address the RFRWG’s priorities, which include:

• Enabling a further shift of volumes from LIBOR to SONIA in derivative markets, supported by a statement from the Bank of England and FCA encouraging a switch in the convention for sterling interest rates from March 2, 2020;
  
  
• Ceasing issuance of sterling LIBOR-based cash products maturing beyond 2021 by Q3 2020; and
  
  
• Establishing a clear framework to manage transition of legacy LIBOR products to significantly reduce the stock of LIBOR referencing contracts by Q1 2021.

The PRA and FCA also state in the letter that they will “step up engagement with firms on LIBOR transition through [their] supervisory relationship,” and the letter concludes by stating that such engagement will be a “key input to [the Financial Policy Committee’s] consideration in mid-2020 of whether sufficient progress is being made to avoid seeking recourse to supervisory tools.”