With Covid-19 and Brexit preparations, it is perhaps no surprise that a benchmark interest rate change has not been at the top of the list of priorities for many SMEs.

However, on 4 March the Financial Conduct Authority (FCA) confirmed that  LIBOR (the series of benchmark reference rates used for calculating interest rates for financial products), will discontinue across most currencies at the end of 2021. While the industry has been working towards this end date for some time, the announcement provides renewed certainty that lenders and borrowers have less than a year to prepare for the cessation of sterling LIBOR, and that it is becoming increasingly critical that businesses are aware of what this means for them.

Additionally, significant milestones impacting businesses are looming. From April 2021 lenders will no longer be able to offer firms new loans linked to sterling LIBOR, and any existing LIBOR-based borrowing firms have will be switched to an alternative rate by 31 December 2021.

To minimise the potential impact of these changes it is important for businesses to understand the transition, identify any exposure and be prepared for conversations with their lenders who will be contacting them about the rate change.

The Working Group for Sterling Risk-Free Reference Rates (RFR WG), the industry working group leading transition in the UK, has been working hard to raise awareness of the actions that end users of LIBOR can take, and UK Finance is committed to supporting the achievement of this objective.

To this end, we are leading an industry outreach strategy, alongside the CBI, ACT, LMA and ICAEW, to target SME end users of LIBOR. To kick start this we have created an introductory guide, designed specifically to help even the smallest business, or any employee not familiar with the transition, to understand what is happening, if it affects them,  and what they can do. It will also signpost firms to the resources available for further information. The guide encourages businesses to review LIBOR mentions (in both products and accounting systems), assess the implications different rates will have, and plan for how to transition with minimum impact.

Moving forward, an industry communication strategy will remain a key enabler for achieving beneficial outcomes for both borrowers and lenders. In the coming months UK Finance will continue outreach to non-financial trade associations, while also engaging relevant trade press and industry publications, adopting a more sector-led approach to tailor outreach appropriately across market segments.

With so much else going on, it is important to help ensure that as many affected SMEs as possible are ready and prepared to mitigate the impact of the end of LIBOR. The next few months are critical in achieving this. We will continue to work with the RFR WG and other trade associations to drive outreach to businesses and encourage recognition that it's time to put LIBOR on their list.

For more information please email the LIBOR Transition project team at liborcoreteam@ukfinance.org.uk. In addition to its introductory guide, please also see UK Finance's detailed guide on the discontinuation of LIBOR.

Free webinar: LIBOR Transition, 18 March

2021 is a crucial year for the LIBOR transition project, with the end of Q1 marking a significant milestone in the national working group's roadmap for ending GBP LIBOR issuance.

This session, in association with legal experts TLT, will aim to provide UK Finance members with the latest update on the ongoing transition, set against the context of the ongoing pandemic, and the latest guidance issued by regulatory authorities and the national working group as we enter the final year of GBP LIBOR's life.

REGISTER HERE