On 30 January 2019, the FCA published a speech by Edwin Schooling Latter, Director of Markets and Wholesale Policy at the FCA, on LIBOR transition and contractual fallbacks. Key points to note from the speech include:
- there is now a wide recognition that LIBOR is coming to an end. Thanks to an agreement reached with 20 panel banks to continue submitting until end 2021, LIBOR is not expected to cease before that point;
- the share of cleared sterling swaps referencing the Sterling Overnight Index Average (SONIA) grew to 19% in the second half of 2018, from 11% in the first half of 2016;
- with regards futures, daily trading volume in SONIA futures, and SOFR futures, both averaged 15,000 contracts per day in December – similar progress has been seen in bond markets.
- uncertainty remains as to how LIBOR will end. As a result of such uncertainty, the FCA continues to urge those still creating new contracts that reference LIBOR that have a contract life beyond end-2021, to move to the new risk free rates whose continued publication beyond that date can be relied on; and
- the smoothest transition to LIBOR will be one in which contracts that reference LIBOR are replaced or amended before fallback provisions are triggered.