United Kingdom (and EU regulation)

BoE publishes speech on the transition away from Libor

By Hannah Meakin (UK), Simon Lovegrove (UK) and Anita Edwards on September 7, 2023 Posted in Benchmarks, United Kingdom

On 7 September 2023, the Bank of England (BoE) published a speech given by Arif Merali, senior advisor for the BoE, at a Libor transition panel discussion in London. Mr Merali answers questions on the transition away from Libor, considering how we got to where we are today, what remains to be done and lessons learnt from the experience.

In his speech, Mr Merali makes the following comments:

Despite the wholly unexpected intervention of the global Covid pandemic and the many other challenges that cropped up along the way, transition was largely achieved on the timeline that Andrew Bailey originally set out in 2017.
There are still four synthetic Libor settings remaining: 3-month synthetic sterling Libor and 1-, 3- and 6-month synthetic US dollar Libor (with the majority of residual exposures in the final three US dollar Libor settings). The sterling setting is due to cease at end-March 2024 whilst the US dollar Libor settings are set to cease at end-September 2024. In the near term, it is therefore still very important that everyone continues to focus on active transition of any remaining legacy contracts ahead of those cessation dates, and sooner rather than later.
In the UK, the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) will continue to monitor supervised firms’ progress in engaging relevant counterparties and remediating outstanding Libor exposures.
The BoE is keeping a close eye on ensuring markets adopt the most robust benchmarks, such as SONIA for sterling and SOFR for US dollars.
The key lesson from the Libor transition has been the importance of collaboration between the private sector and the public authorities.
Public sector involvement has been critical in supplementing industry-led efforts at key points. That support has ranged from advice on project management, to acting as an honest broker between diverse market players, to providing focal points for market transition. And, where it was necessary, it meant harder-edged supervisory guidance too. So, it was a transition led by market participants – but using the authorities’ convening powers to bring them together, and their supervisory powers to enforce the guidance that market participants had set for themselves.