FCA asks corporates to help with Libor transition effort

Watchdog reveals non-financial corporates will have a pivotal role in steering the financial market’s gradual transition to SONIA

Non-financial corporates (NFCs) have been invited to provide insights and advice on the UK financial market’s transition away from the London Interbank Offered Rate, commonly known as Libor.

In a 29 November statement, the Financial Conduct Authority (FCA) said that a broader range of voices was required to steer the process, which is being overseen by the Working Group on Sterling Risk-Free Rates.

Chaired by Barclays International chief compliance officer François Jourdain, the Working Group is comprised of experts from major financial institutions, such as Credit Suisse, Morgan Stanley and Societe Generale – as well as officials from the FCA and Bank of England.

Those experts are managing the UK market’s steady move towards the Sterling Overnight Index Average (SONIA), which has been earmarked as the currency’s primary interest rate benchmark by the end of 2021.

The FCA announced that, from January 2018, the Working Group will have “an extended mandate and broader participation”.

Its new mandate will be to “catalyse a broad-based transition to SONIA over the next four years across sterling bond, loan and derivative markets”, so that the benchmark will be in place, as planned, by the desired deadline.

With that in mind, the FCA noted, “it is clear that active engagement will be needed from participants across all relevant sectors and markets”.

As such, it said, membership of the Working Group will be broadened to include NFCs, investment managers and other sterling issuers, as well as infrastructure firms and trade associations.

The FCA’s statement came just five days after the watchdog confirmed that the Libor panel banks had unanimously agreed to support the benchmark until late 2021, on the understanding that it would be gradually phased out.

FCA chief executive Andrew Bailey said of the Working Group’s forthcoming new composition: “Libor panel banks have agreed to support Libor until 2021. The priority now is to use this period to plan and implement an orderly transition to alternative rates.

“Collective and coordinated efforts through the Working Group… will play a key role in achieving that for sterling markets – and we welcome the commitment of firms and trade associations to that work.”

Jourdain stressed: “The transition to SONIA is necessary and not optional. Input from a broad set of stakeholders will be critical to success.

“The reconstitution of the Working Group has the support of current members. I look forward to working with the vice chairs and new members who can represent relevant sectors and markets as we move forward with our work.”

Bank of England deputy governor for markets and banking Dave Ramsden noted: “Libor transition will be a challenging and complex exercise. The authorities are committed to working with and supporting market participants as they step up efforts on benchmark transition for sterling markets.”

Meanwhile, ACT chief executive Caroline Stockmann welcomed a separate announcement from the Working Group that it has appointed Shell vice president, treasury operations, Frances Hinden FCT as its co-vice chair.

“Corporate representation at a senior level on the Working Group,” she said, “is a welcome move towards considering the development of a replacement interest rate benchmark that meets the needs of corporate users.”

She noted: “Corporates need a stable and reliable benchmark not only for business and financial contracts, but also to forecast, manage and account for many business activities. Continuity of contracts that reference Libor is also fundamental for corporates.”

NFC membership of the Working Group will be arranged by invitation of the Bank and FCA. Further details of the Group’s new look will emerge in the coming weeks.

For an in-depth look at the background of the Libor transition, read this feature from The Treasurer magazine.

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