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Transition from LIBOR to risk free rates – Dear CEO letter issued by Bank of England

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As we approach the next key LIBOR transition milestone at the end of March, the Prudential Regulation Authority and the Financial Conduct Authority issued a joint “Dear CEO” letter to UK Banks which is a must-read for those firms impacted by LIBOR transition. Other businesses, financial services and non-financial services alike, should also accelerate their focus on the implications for their banking arrangements and financial products.

Some key points include:

  • Now in the final phase of the transition from LIBOR to Risk Free Rates (RFR), industry must continue to build on work undertaken to date, and in some areas, accelerate efforts.
  • The PRA/FCA expect all firms to meet the milestones of the Working Group on Sterling Risk Free Reference Rates (RFRWG).
  • The PRA/FCA have written to accountable senior managers of some of the larger firms. The senior managers should satisfy themselves that all appropriate actions are being taken to ensure an orderly transition – transition should form part of the performance criteria for determining their variable remuneration.
  • There will be more intense supervisory focus on firms’ management and oversight of the risks associated with transition including keeping a range of supervisory tools under review for use where there is insufficient transition progress, poor risk management or poor transition governance.

Priority areas for banks – in summary:

  • Cessation of new sterling LIBOR business milestones – any new LIBOR after 31/03 (some exceptions) being indicative of poor risk management and transition governance.
  • Systems readiness for LIBOR cessation – PRA/FCA expect front to back technical solutions, any short-term tactical solutions should be resilient / well controlled and within an “explicit and defined firm risk appetite”.
  • Active transition of legacy LIBOR exposures – Where possible, all legacy sterling LIBOR contracts should be amended by end Q3 2021 (this milestone already existed). The aim must be to get LIBOR contracts to an “irreducible minimum” by cessation.
  • Conduct risk mitigation – need to traceably identify and address risks.
  • Development of RFR markets – firms required to intensify efforts to transact using RFRs and will be asked in the coming months to set out how they are doing this.
  • Model changes – The PRA expects to write to firms in April setting out expectations for market risk models, and in June for counterparty credit risk models.
  • Selection of appropriate alternatives to LIBOR – In selecting benchmarks for use in their products, firms should take account of relevant industry guidelines and recommendations including from the RFRWG. It is important that the selected replacement rate meets customers’ needs, and that customers understand the properties and implications of the rates they are moving to.

If you would like to discuss the “Dear CEO” letter or any other element of your IBOR transition programme, don’t hesitate to reach out to us.

Thought Leaders


Danny Buckley

FS Partner, CFO Advisory

Ken Phillips

FS Director, Financial Accounting Advisory Services




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