Regulatory Insights
NWM: SONIA - LIBOR: time to jump clear before this gets chaotic - FCA
2019-02-21T16:28:12

"Let me immediately remind firms of their responsibility. Billions of dollars-worth of financial contracts needs to move on to a new benchmark rate. If this transition is chaotic, it could have serious repercussions. It is therefore an imperative that we take preparations for 2021 seriously" - Megan Butler, FCA

    

Megan Butler from the FCA sent another strong message today that transition pace needs to pick up.

    

The message that market participants should not wait for term rates and “If … you think we are going to change course. I’m afraid you are wrong” - this could get ugly

  

Messaging appears to be that a smooth transition to SONIA via aligning fallback rates, triggers, and term fixings, while important, should not be the priority – so when banks are no longer compelled to submit their rates – and questions of if it’s still representative are raised – with LIBOR now potentially meaning different things to different products – it’s hard to see anything other than a mess evolving.

  

If you can avoid that mess, then why wouldn’t you – take the opportunity to get rid of LIBOR from your portfolio while it’s relatively painless - before the mess gets reflected in market liquidity and pricing.

  

Previously held views that this transition would occur automatically when cessation is triggered must surely be questioned now.

  

No doubt proactive transitioning is what the FCA are gunning for with this speech.



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Phil Lloyd

Managing Director, NWM Sales

+44 20 7085 1271



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Phil Lloyd
Head of Market Structure & Regulatory Customer Engagement
London
+44 20 7085 1271

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