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LIBOR is not expected to remain a suitable reference rate beyond the end of 2021. While there is over a year left until that date, given the complexity and scale of the implications of LIBOR's cessation stakeholders need to be acting now to ensure they are ready to meet that deadline. In the UK, the Working Group on Sterling Risk-Free Reference Rates (the RFR WG) has set a deadline of Q1 2021 to cease the issuance of any LIBOR-linked contracts - just five months away.
LIBOR transition is complex, multi-faceted, and one of the most significant regulatory challenges the industry is addressing. In order to support members to meet this challenge, UK Finance and the Lending Standards Board are today pleased to launch a Best Practice Guidance report on Transition for SME customers. The report makes strategic recommendations on good practice for the transition of SME customers to non-LIBOR linked products, with the aim of facilitating good customer outcomes and enhancing consistency of approach across the industry. The work and related recommendations have been designed to take account of the principles set by the Standards of Lending Practice for business customers, which are overseen by the Lending Standards Board, and provide a key industry reference point in business lending.
Ensuring customers are suitably informed of the costs, risks and benefits of alternative reference rates to enable them to make an informed choice is key to achieving good customer outcomes. The report assesses the steps that can be taken to achieve this, considering individual circumstances (including financial difficulty and vulnerability), and the different considerations and processes depending on whether the focus is on new lending, or transition from an existing LIBOR-linked lending agreements.
Transitioning SME customers on to alternative reference rates will be particularly challenging, and the report focuses on the SME sector to help address these challenges. The Guidance also covers a range of conduct issues including key points for consideration when selecting appropriate reference rates for customers, what to consider when transitioning existing LIBOR-linked contracts, and governance and oversight issues. It also looks closely at communications with the customer, one of the most important aspects of LIBOR transition. While the focus is on SME customers, the report will be of benefit to all members impacted by LIBOR transition, as well as other interested stakeholders sharing the collective aim of migrating away from LIBOR onto robust replacement rates for the future.
For more information on the Guidance of UK Finance's work on LIBOR, please contact Rob Driver or the wider team at liborcoreteam@ukfinance.org.uk.
Workshop: Liberating Accounting Relief for LIBOR, 27 November
Regulators have announced a transition away from the InterBank Offered Rates (IBOR or IBORs) to alternative Risk Free Rates (RFR or RFRs). Interest Rate Benchmark Reform will fundamentally impact banks and other lenders, regardless of whether report under IFRS and UK GAAP.
By the end of this workshop you will gain:
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Robert Driver, Principal, LIBOR Transition, UK Finance
Regulators have announced a transition away from the InterBank Offered Rates (IBOR or IBORs) to alternative Risk Free Rates (RFR or RFRs). Interest Rate Benchmark Reform will fundamentally impact banks and other lenders, regardless of whether report under IFRS and UK GAAP. Learn about potential impacts at our upcoming workshop.
19.04.24
17.04.24
15.04.24
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