On 16 January 2020, the Bank of England, the Financial Conduct Authority (FCA) and the Working Group on Sterling Risk-Free Reference Rates (the Sterling Working Group) published a set of documents, outlining priorities and milestones for 2020 in respect of the LIBOR transition.

Priorities

The Sterling Working Group published its priorities and an updated roadmap, from which it appears that (i) the issuance of cash products linked to sterling LIBOR should be ceased by end-Q3 2020, (ii) steps should be taken throughout 2020 to promote and enable widespread use of SONIA (Sterling Overnight Index Average; the relevant risk free rate alternative for LIBOR), (iii) steps should be taken to enable a further shift of volumes from LIBOR to SONIA in derivative markets and (iv) a clear framework should be established to manage the transition of LIBOR products in order to significantly reduce the stock of LIBOR referencing contracts by Q1 2021.

The Bank of England and the FCA support these objectives and issued a joint letter to major banks and insures supervised in the UK, setting out their initial expectations regarding the LIBOR transition. The Bank of England and the FCA also issued a joint statement encouraging market makers to switch the convention for sterling interest rate swaps from LIBOR to SONIA.

The Sterling Working Group

The Sterling Working Group published a document including its views on which types of business and clients should use SONIA. The Sterling Working Group also published a lessons learned-document from recent conversions of LIBOR contracts and a factsheet that sets out why all market participants need to act now.

The documentation referred to above can be found using this link.

https://www.bankofengland.co.uk/markets/transition-to-sterling-risk-free-rates-from-libor.

The benchmark rate transition has also been discussed in the Netherlands by the Financial Stability Committee (the FSC, being a committee consisting of representatives of the Netherlands Authority for the Financial Markets, the Dutch Central Bank and the Ministry of Finance). The FSC states that €STR (de Euro Short-Term Rate) has been launched successfully and that financial institutions have until Q4 2021 to effectuate the transition from EONIA to €STR, noting that in some markets parties will be confronted with changes sooner.