Looking ahead to the LIBOR transition

LIBOR is likely to be discontinued in all its forms at the end of 2021 and there is a collective need across the financial services sector, customers and regulators to ensure we are all ready for a world without it. It is particularly important that business customers are aware of why LIBOR is unsustainable, what the options are in terms of alternatives, and how the move away from LIBOR is being managed. The guide UK Finance has launched today for members aims to address some of this based on what we currently know. 

Despite significant reforms since the financial crisis, the number of transactions which underpin the estimates submitted by panel banks to the administrator of the benchmark in order to calculate LIBOR is substantially lower than it has been historically. For some interest periods, LIBOR has increasingly become a rate which reflects major banks? judgements concerning their cost of borrowing rather than market transactions representing their actual cost of borrowing. As a result, there is a widespread view that the fall in real ?observable? transactions means that LIBOR is no longer a sustainable benchmark. 

 This UK Finance guide is intended for business customers who hold LIBOR-linked financial products, including loans, to help them understand more about this discontinuation and what they should expect to hear from their bank or lender in the coming months.

In the meantime, there are a number of steps that businesses can and should take. These include:

? make an inventory of LIBOR exposures

? analyse and assess affected products

? consult with their finance provider

? review alternatives and their pros and cons (SONIA is only one option of several)

? review individual contracts to identify if fallback clauses explain what happens in the absence of LIBOR

? consider other elements such as systems, accounting and tax matters.

As further developments arise from the Working Group on Sterling Risk-Free Reference Rates, which was established by the Bank of England, UK Finance will update its guide with the latest developments. There is also an increasing body of additional material available for businesses to help understand what the end of LIBOR means for them. In particular, the information published by the Association of Corporate Treasurers and the Institute of Chartered Accountants of England and Wales (ICAEW) may be of use.

We hope our guide is a useful tool in helping business customers understand what the end of LIBOR may mean and how you can begin to prepare for a world without it - businesses are also likely to hear from their lender(s) in the coming months. The guide is available here.

The Mortgage Dinner

This year the Mortgage Dinner takes place at the stunning City Central at the HAC on Wednesday 4 December. We hope that you, your colleagues and clients will be able to join us this black-tie gala evening for fantastic food, wine, and networking.

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