The Bank of England told markets to get ready for the end of Libor interest rates in a year’s time as regulators will be “watching closely” for laggards.
Market participants must quantify their Libor referenced contracts that mature beyond the end of 2021, BoE executive director for markets Andrew Hauser said on Wednesday.
“To stand a chance of controlling your destiny, you need to know what your exposures are, and how you’re going to deal with them over the course of next year,” Hauser said in a speech.
“Make and resource those plans now – we don’t want anyone to be caught out. And the regulators will be watching closely.”
The London Interbank Offered Rate or Libor is compiled in five currencies, including sterling and dollar, and used to price contracts from home loans to credit cards and derivatives worth up to $400 trillion globally.
From the end of 2021, it is largely being replaced by overnight rates set by central banks, such as Sonia which is compiled by the BoE.
Hauser said market participants should move all new business away from sterling Libor by the end of March and whittle down “legacy” contracts that mature beyond 2021.
Markets were making progress in ending the use of Libor, but “another jump” is needed in switching from Libor to Sonia in swaps to meet the end of March target, Hauser said.
Such goals were challenging, particularly in current difficult operating conditions, he said.
“But with Libor’s retirement now in the diary, sending new business its way isn’t just optimistic – it’s imprudent too.”
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