LIBOR TRANSITION
Supporting members with the transition away from LIBOR has remained a key priority for the IA throughout 2021. From the end of 2021, LIBOR will be phased out by jurisdictions around the world – by that point there should be no further issuance in the UK of LIBOR-linked instruments and all outstanding LIBOR-linked securities should have been transitioned to a new rate.
The IA and its members have been strong supporters of the LIBOR transition process throughout, and have demonstrated that support through a number of initiatives. These include:
Engagement with working groups The IA and a number of its members sit on the Working Group on Sterling Risk Free Reference Rates, established to support the transition of LIBOR to SONIA. Likewise, the IA and many of its members also sit on many of the working group’s sub-groups, focused on specific areas of the LIBOR transition process, including bonds, derivatives and loans. The IA has also established its own internal LIBOR Transition Working Group, providing a forum for investment managers to discuss and address issues related to LIBOR transition.
Publication of educational material and guidance The IA has produced educational material for its members, guiding them through the transition process, including the 2019 LIBOR Transition Roadmap for Investment Managers, and the 2020 report ‘Time To Act Now: LIBOR Transition for Investment Managers’. In addition, the IA has hosted educational webinars and roundtables on the topic. We are also aware that many of our members have also produced their own educational material, aimed at guiding their clients, as well as the issuers in which they have invested, through the LIBOR transition process.
Communication with issuers and public calls for transition At the behest of its members, the IA published an open letter in February to issuers of LIBOR-linked GBP bonds, calling on issuers to initiate transition plans as soon as possible, and to highlight investor support for past LIBOR transition consent solicitation processes. This letter was positively received, and has led to further conversations with issuers.
An 'orderly wind-down' On 29 September, the FCA made announcements on orderly wind-down of LIBOR and also released a consultation paper on its proposed treatment of legacy LIBOR instruments. The consultation set out a broad proposed scope for the use of synthetic LIBOR – an artificial LIBOR set by the FCA and designed to help smooth out issues with tough legacy products until the end of 2022, when it will be reviewed. In our response, we were supportive of the proposals in general, but highlighted some instruments where there still may be issues – including Fix-to-Float instruments. The Group has also produced a paper on this issue which it has shared with the FCA.
Transition Progress The transition away from LIBOR to new risk-free rates generally progressed well. However, there were some persisting issues which proved challenging for members, both in terms of confirmation of the regulatory approach as well as the timeline to make any changes by the deadline of end of December 2021. Tough legacy products more generally - ones that continue to have a LIBOR element and are active beyond December 2021 – remain a concern to members.
Next Steps for the IA The LIBOR Transition Working Group will meet in January 2022 to take stock of the transition and discuss any outstanding issues.
Hugo Gordon Senior Policy Adviser, Capital Markets hugo.gordon@theia.org