How banks can improve their readiness for the IBOR transition

It’s not too late for banks to implement plans and collaborate with the industry to achieve a smooth and timely IBOR transition.

The London interbank offered rate (LIBOR) is expected to be retired in 2021 and the Bank of England (BoE) has sounded a call for financial institutions to take the deadline seriously. Banks need to accelerate their implementation plans and proactively manage the issues and challenges of moving away from LIBOR and transitioning to alternative reference rates (ARRs).

A panel event on 5 June 2019, Last Orders Calling Time on LIBOR, brought together representatives from the BoE, Financial Conduct Authority (FCA) and the Working Group on Sterling Risk-Free Reference Rates. Participants shared their views on market readiness and flagged key issues requiring further discussion.

Coinciding with the event, the FCA and Prudential Regulation Authority released a summary of key findings and next steps based on responses to their “Dear CEO letter” that was sent to major banks and insurance companies last September. This letter was expected to drive firms to focus on interbank offered rates (IBORs), help raise awareness and serve as a blueprint for transition readiness.

Two important takeaways emerged from the panel discussion:

  1. The IBOR transition should be a board-level issue for all financial institutions – not only those that received the “Dear CEO letter.” Accountability and responsibility are themes that all senior governance committees should prioritize on their agendas. The BoE event provided further clarity on the need for engagement from senior executives. 
  2. Regulators are listening and adopting a collaborative approach with the industry. This is reflected in the new Sterling Senior Advisory Group that is working with banks to identify issues and propose positive steps to address the complex challenges.

Taking a broader view

As regulators look at the big picture, it is clear that the industry’s efforts around the use of new rates in the sterling market have increased and are ahead of expectations. However, the BoE has been surprised by the different levels of readiness and the slow response by some banks. Supervisors are working closely with firms and encouraging those who are less prepared to take action and close the gap with those leading the way.

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