The UK’s Financial Conduct Authority, the Bank of England and a Working Group today encouraged the financial companies using synthetic LIBOR to adopt permanent and robust alternatives to the controversial LIBOR.
Most LIBOR settings were published for the final time in the end of last year. The FCA has clearly stated that synthetic LIBOR is a temporary bridge to RFRs and it may not be available at the end of 2022.
As a result, the majority of the industry transitioned into Sonia, as f £13 trillion LIBOR-referencing contracts converted to SONIA in December 2021.
SONIA is the most used alternative to LIBOR in the UK. Since 2018, Its floating rate note issuance in cash markets surpassed £120 billion. New SONIA lending has exceeded £100 billion in a diverse range of sectors.
The Bank of England estimates that less than 2% of the total sterling LIBOR legacy stock remains and notes still remained, and firms are already addressing this residual exposure.
The UK agency will consider retaining 1-month and 6-month synthetic sterling LIBOR at the end of 2022 and will also decide on when to end the 3-month sterling synthetic LIBOR.
Andrew Bailey, the Bank of England Governor, said:
It is difficult to think of a more far-reaching and substantial market shift in recent years than the transition away from LIBOR. The fact that most LIBOR settings ended at end-2021 with minimal disruption is a testament to the co-operation across a wide range of industry sectors and jurisdictions.
