On 21 September 2021, there was published a speech given by Toby Williams at the AFME/IMN Global ABS on 17 September 2021. Mr Williams works at the FCA, in the Benchmarks Policy team within the Markets and Wholesale Policy Division. The speech is entitled IBOR transition: How ready are we for 2022?

Key points in the speech include:

  • Firms should act now. Firms should prepare their contracts for transition either through fallbacks or active conversion. Taking the example of consent solicitations in the bond market, these require holder approval as well as input from different teams. As the end of the year approaches, resource may be booked up. The time is now to have timelines and clear plans in place.
  • If a firm is intending to use market prices to enable transition, it needs to be aware of the evolving market conditions as the end of the year approaches. Liquidity continues to move from LIBOR to SONIA in many markets. The effects of this should not be ignored.
  • The FCA is doing a number of things to support an orderly year end. In particular, it will soon launch a short consultation on exactly which legacy contracts will be able to use any synthetic sterling and yen LIBOR settings. It is vital that firms respond to this consultation. The FCA will confirm its final decisions as soon as practicable following the consultation.
  • Market participants should be amending their contracts wherever practicable and should not be waiting for the synthetic solution. Synthetic LIBOR should be seen as a “bridging solution” only.
  • From the end of the year there should be no use of US dollar LIBOR. The FCA will be monitoring this closely and firms should expect supervisory questions and scrutiny if making new use of dollar LIBOR after the end of the year.
  • Term rates are now being produced in both sterling and dollar markets. In both markets, suitable limited use cases have been developed by industry groups. It is important to remember that each use case has been developed with its own currency and its nuances in mind. The ARRC guidance does not overrule anything produced by the FICC Markets Standards Board or Risk Free Rate Working Group nor vice-versa.
  • It is prudent that contracts include robust fallbacks as well, no matter the primary rate that is selected. Where a fallback rate could be subject to the same vulnerabilities as the primary rate (and therefore possible material change), the FCA thinks that the fallback is unlikely to meet this standard.