Regulatory Insights
NWM: drink up, LIBOR is in the last chance saloon

On 5th June the Bank of England hosted Last Orders: Calling time on LIBOR


Though there were no ground-breaking new announcements, both Dave Ramsden of BoE and Andrew Bailey of FCA reaffirmed their commitment to a future without LIBOR after 2021.  This echoes Megan Butler's speech in February.


The message was clear, time is being called on LIBOR.


Key takeaways from the conference:


  • there have been positive signs in development of the SONIA market (swaps, FRNs) but the pace of progress needs to accelerate, with the next big milestone being the first SONIA loans

  • the 'Dear CEO' letter achieved it's objective to focus attention on LIBOR transition, but there were quite a range of responses and firms should expect the level of supervisory engagement to intensify

  • there is momentum building for a SONIA term rate, but only for some parts of the cash market and some legacy contracts.  This should not be seen as a reason not to transition to SONIA where you can. 

  • don't leave it to the last moment, invest in the necessary changes for transition now


For more information see the Bank of England website and our summaries below:



See also our recent roundup of other LIBOR news in May, including a link to our SONIA Realised Rate Calculator.  


Last Orders: Calling Time on LIBOR (Dave Ramsden)


In his speech Ramsden recognises that some good change has happened but is very clear that there is more to be done, and quickly – "the pace of progress needs to accelerate".


The way banks fund themselves has changed - "in the first quarter of this year there were on average only 9 deposits a day underpinning 6 month sterling Libor, with a total daily value of £81 million. This lack of transactions means that panel banks have to use their expert judgement to make their submissions…this means they have become increasingly uncomfortable doing so…if those panel banks stop submitting, there is no Libor benchmark."


He acknowledges that transitioning is happening and there has been real progress – "the first 5 months of 2019 have seen 21 different banks, sovereigns, and supranationals issue FRNs referencing compounded SONIA, with a total value of about £19bn. However, we are yet to see a Sonia based loan and there needs to be more done on building the required infrastructure to accommodate a SONIA linked world....there is much more to be done". 


Ramsden suggested that they are going to start intensifying the level of supervision on this now to ensure that firms are ready for the end 2021, and they will be reaching out to every firm individually as a follow on from the ‘Dear CEO’ letter. They emphasise that this is a matter that the most senior members at firms should be involved in.


Ramsden noted that the BOE is continuing to work alongside the FSB, considering this a "global issue".


Working Group on Sterling Risk-Free Reference Rates (Tushar Morzaria)


Transitioning to SONIA in the sterling derivatives and cash markets – immediate priorities:


  • Term rate

  • Accounting treatments

  • Regulatory dependencies


Term Rate


Liquidity in SONIA referencing is increasing but not uniformly across products. Need for a SONIA based term rate to enable move away from LIBOR but the challenge is how to replace a 3 month LIBOR rate with overnight SONIA. The Working Group has conducted extensive analysis to date (Term SONIA Reference Rate Consultation (TSSR) available on the Bank’s website) which concluded that a TSSR would help facilitate transition for cash market users, i.e. loan markets where usage of forward-looking rates is common but corporate borrowers are likely to prefer reference compounded SONIA. Users of both cash and derivatives products encouraged to press ahead on that basis.


SONIA adoption advanced quickly over the last year, not only in derivatives, but also in FRNs and securitisations. "The Working Group does expect the future use of any forward-looking risk-free term rate in cash markets to be more limited than the current use of LIBOR." However, "the Working Group concluded a term rate could help to reduce the reliance on LIBOR".


Potential Administrators of a SONIA-based term rate are:


•    ICE Benchmark
•    FTSE-Russell
•    Refinitiv


More news on this expected later in the year.

Accounting Treatment


Market participants are concerned about effects on hedge accounting. In particular, "questions have been raised with regards to how the transition will affect these beneficial relationships; does the cessation of LIBOR mean some hedge accounting treatment may no longer be permitted?"


The International Accounting Standards Board (IASB) has been looking closely as such reporting matters and published  a consultation paper last month. "The Bank’s expectation is that the IASB will implement welcomed relief from next January."

Regulatory Dependencies


The key point here is to try to identify some of "laws and regulations that exist which perhaps did not contemplate the transition from LIBOR." Some of these laws may inadvertently hinder the general adoption of risk free rates. A task force has been set up by the Working Group, chaired by the FCA, that will consider these implications. "Some of the issues identified so far are as diverse as EU mandated discount curves, domestic capital model approvals and grandfathering of legacy swaps under global margin rules." There will clearly be implications outside of the UK.

Senior Advisory Group set up


"To ensure visibility and support for the transition across senior peers in the UK", the Working Group has reached out to senior leaders to form an advisory group. The aim of this group is to support the Working Group, to help add momentum to drive the transition effort in order to be ready for the end of 2021. This wider group met for the first time this morning and are committed to a common purpose.


Dear CEO Thematic Feedback


The FCA and PRA wrote to CEOs of major banks and insurers in September 2018 asking for details on work to transition away from Libor.


Clear message that the regulator wants all firms to complete a comprehensive assessment of how LIBOR interacts with the firm’s business.


Observations made across 8 key areas, highlights include:


  • "Some firms lacked the management information to provide a clear understanding of current LIBOR exposures, including where contracts mature after 2021."

  • "Where appropriate, this would very likely include nominating a senior executive covered by the Senior Manager Regime as the responsible executive for transition"

  • Firms should "develop a project plan for transition, including key milestones and deadlines to ensure delivery by end-2021"

  • "For insurers, the Solvency II discount curves for major currencies are currently LIBOR-based. We are aware that insurers need clarity about when and how these discount curves will transition to replacement risk-free rates. We understand the challenges this poses to insurers, and we are working constructively with EIOPA and others to address these issues."  



Roadmap published by the working group


Reiteration of the message that "the FCA has said it does not intend to use its powers to maintain LIBOR beyond end-2021".


Targets in the roadmap


  • 2020 Q1 – term rates produced and made available to use where appropriate

  • 2020 Q2 – Financial institutions get infrastructure and pricing models ready for the switch

  • 2020 Q3 – Target the end of all issuance vs Libor beyond 2021

  • 2021 Q1 – Targeting significant reduction in contracts referencing Libor






This is Non-Independent Research, as defined by the Financial Conduct Authority.This material should be regarded as a marketing communication and may have been produced in conjunction with the NatWest Markets Plc trading desks that trade as principal in the instruments mentioned herein. All data is accurate as of the report date, unless otherwise specified.


This communication has been prepared by NatWest Markets Plc, and should be regarded as a Marketing Communication, for which the relevant competent authority is the UK Financial Conduct Authority.   Please follow the link for the following information   


Where communicated in Singapore, this communication may be deemed an advertisement. This advertisement has not been reviewed by the Monetary Authority of Singapore.  


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Phil Lloyd, NWM Sales

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


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