FCA Encourages Transition from LIBOR to Robust Alternative Rates

The Bank of England, FCA and Working Group encourage firms to continue to pursue the active transition of legacy sterling LIBOR contracts currently using the temporary synthetic LIBOR.

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FCA Stressed that Transitioning these contracts to permanent robust alternatives remains the best way to retain control and economic certainty over existing agreements.

The FCA has been clear that synthetic LIBOR is a temporary bridge to RFRs, and its availability is not guaranteed beyond end-2022. The FCA must review its availability annually. During the course of 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.

The transition from US dollar LIBOR remains of critical importance globally, including in the UK where many firms are active in US dollar interest rate markets. To support the transition from US dollar LIBOR the FCA's prohibition on its use in certain new contracts came into effect from the start of 2022, in line with US supervisory guidance.

UK supervised entities should no longer be using US dollar LIBOR in new contracts, with limited exceptions. The Bank of England, FCA and the Working Group encourage transition to robust alternative rates, such as SOFR. Supervisors will continue to monitor UK regulated entities' progress in transition.

Andrew Bailey, Governor of the Bank of England, said:"It is difficult to think of a more far-reaching and substantial market shift in recent years than the transition away from LIBOR. Following the ambitious roadmap laid out in 2017 to move markets to more robust risk-free rate alternatives, market participants have dedicated significant resources to ensuring a smooth transition and deliver a more robust financial system."

"The fact that most LIBOR settings ended at end-2021 with minimal disruption is a testament to the co-operation across a wide range of industry sectors and jurisdictions. With only a few settings remaining to facilitate the further wind-down of existing exposures, I would like to thank all involved for their efforts and encourage those with remaining LIBOR exposures to see this project through to its very end."