On 9 February 2022, the Financial Conduct Authority (FCA) provided an update regarding the achievements in sterling markets since the LIBOR transition on 31 December 2021, what more needs to be done and how the Working Group will operate going forward. Sterling markets navigated the transition on time and with minimal disruption, supporting global transition efforts towards alternative risk-free reference rates.

Progress in sterling markets: SONIA is now embedded across sterling markets and there are no longer any sterling LIBOR linked cleared derivatives. There was a reduction in the legacy stock of LIBOR-linked derivatives after the implementation of ISDA’s IBOR Fallbacks. In cash markets, SONIA floating rate note issuance since 2018 exceeds £120bn, and new SONIA lending exceeds £100bn across a diverse range of sectors and facility types. It is estimated by the Bank of England, that there are now less than 2% of sterling LIBOR legacy stocks that remain across all asset types and there are plans to address this residual exposure.

What more needs to be done: Firms are being encouraged to continue to pursue the active transition of legacy sterling LIBOR contracts currently using the temporary synthetic LIBOR as its availability is not guaranteed beyond end-2022. The FCA will seek views on retiring 1-month and 6-month synthetic sterling LIBOR at the end of 2022, and on when to retire 3-month sterling synthetic LIBOR. From the start of 2022, the FCA prohibited the use of US dollar LIBOR in certain new contracts and supervisors will continue to monitor UK regulated entities’ progress in transition.

Working Group: The Working Group on Sterling Risk-Free Reference Rates (Working Group) concluded that it had met its objective to ‘catalyse a broad-based transition to SONIA across sterling derivative, loan and bond markets’. It will continue to primarily support the continued active conversion of legacy sterling LIBOR-linked bonds and loans that are dependent on temporary synthetic LIBOR and consider any implications of non-sterling LIBOR transition in UK markets. Sarah Boyce will now be the new Chair of the Working Group from 1 March 2022 to lead it in the next phase of its work.