The Bank of England and Financial Conduct Authority (FCA) have warned market participants that the coronavirus pandemic could impact the timeline of the transition away from Libor.
In a statement, the UK authorities said that while the end of 2021 remains the target for firms to stop using the Libor benchmark, segments of the UK market, such as the loan market, have made less progress in the transition.
As a result of the impact of coronavirus, the Bank of England and FCA confirmed some interim transition milestones would likely be affected due to disruption to market participants’ transition efforts.
“The transition from Libor remains an essential task that will strengthen the global financial system,” the statement said. “Many preparations for transition will be able to continue. There has, however, been an impact on the timing of some aspects of the transition programmes of many firms… It is likely to affect some of the interim transition milestones.”
Just months ago, the authorities published various documents and updated its roadmap for the shift towards the Sonia (Sterling Overnight Index Average) benchmark. Describing 2020 as a ‘critical’ year for Libor transition, the measures from the authorities requested that participants cease issuance of cash products referencing Libor by the third quarter this year.
The controversial Libor benchmark is being phased out following years of scandal, alleged manipulation and a decline in activity, and is scheduled to be replaced with Sonia by the end of 2021. Twenty major banks agreed to continue making submissions to Libor until then to ensure a smooth transition as the benchmark is phased out.