Changesinthepipeline

In 2017 the Financial Conduct Authority (FCA) announced they will no longer persuade or compel banks to submit rates for the calculation of LIBOR after 2021, propelling a shift away from the use of Interbank Offered Rates (IBORs) globally. Publication of the London Interbank Offered Rate (LIBOR) across various maturity tenors for GBP, EUR, CHF and JPY are most likely to cease after December 2021. USD LIBOR for certain, less frequently used tenor maturities (1 week and 2 month) are also anticipated to cease at the end of December 2021. Frequently used and referenced USD LIBOR maturity tenors (Overnight,1, 3, 6 and 12 month) are most likely to cease after June 2023.

LIBOR may continue to be published voluntarily by panel banks that have a large inventory of LIBOR linked exposure that might roll-off in the three to five years after 2021, but national supervisory authorities are increasingly stressing that the risks associated with the LIBOR cessation need to be addressed by impacted organisations. Any extension would require a formal agreement from panel banks to continue to submit towards LIBOR’s determination. Given the push to transition to ARRs, it is unlikely that the FCA will seek such an agreement.

The impact of COVID-19

On 25 March 2020, the FCA, Bank of England (BoE) and Working Group on Sterling Risk-Free Rates released a brief statement on the impact of COVID-19 on firms’ LIBOR transition plans, reiterating that “The central assumption that firms cannot rely on LIBOR being published after the end of 2021 has not changed and should remain the target date for all firms to meet”. Further guidance may be issued to the market but for now, there is no indication that timelines would materially change.

FIRSTRAND has solid governance structures set up to drive change and workstreams across the business. We will continue these efforts to ensure that we are in line with our peers across the globe and also continue to work towards acting in the best interests of our clients. In line with other financial services organisations, we are continuing to plan to reduce LIBOR exposures by issuing new non-LIBOR linked products, encouraging refinancing options and remediating existing deals in good time.

Market participants have begun to adopt ARRs, including, but not limited to those outlined in the table:

Country	Rate	Administrator
United States	Secured Overnight Financing Rate (SOFR)	Federal Reserve Bank of New York
United Kingdom	Reformed Sterling Overnight Index Average (SONIA)	Bank of England
European Union	Euro Short-Term Rate (€STR)	European Central Bank
Switzerland	Swiss Average Rate Overnight (SARON)	Swiss National Bank
Japan	Tokyo Overnight Average rate (TONA)	Bank of Japan