LIBOR Transition

Over the last three months, various international supervisory bodies have reaffirmed the planned timelines for transition away from LIBOR to alternative reference rates, such as SONIA (Sterling Overnight Index Average) or SOFR (Secured Overnight Financing Rate).  Firms should therefore continue to assume that they will be unable to rely on LIBOR being published beyond the end of 2021 and should make provisions for transition to alternative rates well in advance of this date.

Guernsey regulated firms should consider if and how they will be affected by the transition away from LIBOR and what actions they should be taking in order to mitigate these risks, irrespective of the  currency in which they transact.  The Bank of England and the Working Group on Sterling Risk-Free Reference Rates (“RFRWG”) have recently published a paper on “Tough legacy issues” which analyses and comments on the risks and mitigants available in relation to each asset class where LIBOR is prevalent and provides examples of how firms may be affected.  Meanwhile, the US Alternative Reference Rates Committee (“ARRC”) has produced various publications suggesting best practices in the relation to the move away from US Dollar LIBOR.

Regulated firms should consider the above referenced papers and other available publications, which may be relevant to various alternative currencies, when managing their risk in relation to the upcoming transition period.

Information from the RFRWG and the ARRC can be found below:

https://www.bankofengland.co.uk/markets/transition-to-sterling-risk-free-rates-from-libor

https://www.newyorkfed.org/arrc