LIBOR alignment uncertain as replacements falter

Regulators soften position on 2021 migration target as concerns are raised about agreeing a consistent approach to reference rate remediation.

Towards the end of 2018, the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) applied some gentle pressure to banks and insurance companies, by requesting explanation of their plans for an orderly move away from the widely used LIBOR family of reference rates (something we commented on in our October article). Around that time, industry bodies such as the International Swaps and Derivatives Association (ISDA) and the Alternative Reference Rates Committee (ARRC) made some encouraging noises about the progress made towards adopting a consistent approach[1] to the use of the proposed Risk Free Rates (RFRs) which are proposed as replacements for five LIBOR currency rates.

Rolling the story forward another quarter, the future begins to look a little less certain.  At the end of January, the FCA suggested that the current working target of transition by the end of 2021 may not be achievable and that, for certain products, there is a possibility for an extended period of LIBOR publication beyond 2021[2]. Then, in February, the Working Group on euro risk-free rates published feedback on its recent consultation[3]. This feedback effectively contradicts the message from equivalent bodies, such as ISDA, covering the adoption of fallbacks to the current LIBOR structures – the European feedback being more in favour of forward-looking term rates than counterparts focused on the sterling and dollar markets. In Switzerland, there is nervousness that liquidity around the SARON RFR is not yet at a point where it is ready to take over from LIBOR[4], and feedback from Japan indicates their concerns about the proposed fallback options[5].

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This uncertainty (alongside other unresolved topics impacting Financial Services such as Brexit and FRTB) makes the planning exercise more complex and difficult to forecast. Given the scale of scope of the challenge, however, firms must still get remediation programmes underway.

On the positive side, industry awareness of the scale and complexity of the LIBOR remediation challenge continues to increase on both the buy- and sell-side. The Investment Association, for example, recently published a roadmap[6] laying out the foundations for transition away from LIBOR for asset management firms. Most firms now have central programmes underway to investigate the impact and analyse some of the future scenarios once more certainty is reached. Some are commencing their delivery projects to set up products referencing the new RFRs as a pre-requisite to generating sufficient liquidity to gain momentum to move new business away from LIBOR.

It is clear that there is still a lot of planning, analysis and governance required ahead of what will hopefully be an alignment of the planets, ahead of any LIBOR cessation. The potential for additional complexity stemming from the current round of mixed messages should lead firms to accelerate their IBOR remediation programmes, rather than to defer the problem whilst awaiting more clarity. In this way, they can be in a good position to act swiftly and decisively once the final details emerge, without disruption to  other key business objectives.


[1] ARRC Meeting minutes, Dec 5, 2018
[2] FCA’s Edwin Schooling Latter elaborates on transitioning away from LIBOR (Financefeeds, 28 Jan, 2019)
[3] Swaps market heading for Libor fallbacks clash (, 27 Feb, 2019)
[4] Shallow liquidity threatens Saron momentum (, 1 Mar, 2019)
[5] Japan dealers unhappy with all Libor fallback options (, 18 Nov, 2018)

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Matt Gall

Matt Gall


Matt leads the firm’s Business Transformation practice, focusing on the execution of strategic front-to-back change. He brings more than 25 years’ experience across the full technology life cycle, bridging business and technology functions in the delivery of strategic capital markets programmes.