At a LIBOR seminar held at the Bank of England this morning (5 June 2019), David Ramsden, a Deputy Governor of the Bank of England, has called time on LIBOR saying that “firms need to be focussed on what they need to do to be able to transact SONIA based products” and “stop adding to their post 2021 LIBOR exposures”.  He determined that banks which submit rates to determine LIBOR have become “increasingly uncomfortable” about doing so and “if those panel banks stop submitting, there is no LIBOR benchmark”.

The seminar coincided with the release of a joint statement by the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) on preparations for transition from LIBOR to risk-free rates.  The joint statement summarises the feedback on the “Dear CEO” letter on LIBOR transition issued by the FCA in September 2018.

The conclusion is that all firms need to plan for the cessation of LIBOR starting with a comprehensive assessment of how LIBOR interacts with a firm’s business.

They found that some firms lacked management information to provide a clear understanding of LIBOR exposures beyond 2021.  The PRA and FCA expect firms to consider a range of tools and metrics to monitor their exposure and related risks.

Strong firms have put in place clear and appropriate governance with reporting to key senior managers on a regular basis.

Exposure to LIBOR was found to be deeply embedded across firms’ assets and liability structures as well as in ancillary contract terms and a wide range of applications and infrastructure used for valuation, pricing, performance evaluation and risk management.

Most firms provided summary assessments of LIBOR exposures extracting information manually, requiring considerable time and effort. Strong responses included details of plans being developed to allow firms systemically to extract the data set on a regular basis.

Only a small number of responses demonstrated detailed resourcing work had been undertaken.  The clear implication being that firms need to be doing more detailed work on resourcing and budgeting for the transition.

Mr Ramsden confirmed that the transition is happening with increased use of SONIA products although noting that they have yet to see SONIA based loans urging the audience to accelerate the pace of progress noting there is much more to be done.

A recording of the seminar, speech notes, roadmap and feedback can be found here.