Since 2017 the Bank of England (BoE) and the Financial Conduct Authority (FCA) have made clear their intention that the London Interbank Offered Rate (LIBOR) will, in its entirety, cease to be the benchmark upon which interest is calculated in all financial instruments by the end of 2021. As a result, 2020 was described as a ‘critical year’ in the UK market’s transition from LIBOR to SONIA.
Seemingly 2020 is indeed proving a ‘critical year’, but not for the reasons the FCA and BoE had intended. Early this year, the BoE produced a roadmap particularising various milestones and deadlines for a smoother transition from LIBOR to SONIA. Notably in this roadmap, it was envisioned that, by September 2020, firms would no longer issue cash products that reference LIBOR. However, in a statement released on 25 March 2020, the FCA expressed that, whilst the overall goal of a complete transition from LIBOR to SONIA by the end of 2021 remains, it does recognise that there has “been an impact on the timing of some aspects” due to the Covid-19 outbreak. The FCA notes that, because some sectors of the UK market (such as the loans market) still rely heavily on LIBOR, the disruption being caused by Covid-19 is “likely to affect some of the interim transition milestones.” We take that to be a reference to, among others, the September milestone for discontinuance of new sterling products that reference LIBOR.