The transition from Interbank Offered Rates (IBOR) – Information for Regulated Entities
Regulators involved with benchmark interest rates have been making preparations for the replacement of various Interbank Offered Rates (IBOR) with alternative Risk Free Rates (RFRs) for some time. For example, sterling LIBOR (London Interbank Offered Rate) is to be replaced by SONIA (the Sterling Overnight Indexed Average Rate).
Banks and other financial institutions are therefore getting ready to move away from IBORs towards RFRs. For example, the use of LIBOR will cease at the end of 2021.
As the new RFRs are calculated using a different basis to IBORs, any existing contracts which refer to the current IBORs will require amending or even replacing to reflect the changes.
The Authority would like to take this opportunity to remind Regulated Entities of the changes being made internationally, and the importance to understand and address any exposure regarding contracts entered into by themselves or their clients which make reference to the current IBORs, including LIBOR.
The Bank of England and UK Financial Conduct Authority has also recently issued the following fact sheet which you may find useful https://www.bankofengland.co.uk/-/media/boe/files/markets/benchmarks/rfr/factsheet-calling-time-on-libor-why-you-need-to-act-now.pdf