PRA Outline Best Practice in Transition from LIBOR
The UK’s Prudential Regulation Authority (PRA) have issued a document of key findings, good practice and next steps for transition from the London InterBank Offered Rate (LIBOR) to risk-free rates (RFR) for firms to consider when planning their own transition.
After a series of manipulation scandals, the once-dominant LIBOR benchmark is being abandoned, with the US, UK, EU and other key markets having until the end of 2021 to transition to a new rate. Many financial products, as well as commercial leases, contracts for supply, derivatives and even ETFs have LIBOR and other legacy benchmarks embedded into their contractual frameworks. Changing the contract might mean renewing the product altogether, often with unplanned tax or financing implications. As a result, progress towards the transition has been slow.
To assess the level of preparedness across major market participants in the UK the PRA has surveyed significant firms, publishing the results in this guide for those affected by the transition to alternative rates.
The guide eight steps for firms to take to prepare themselves for the transition, beginning with identifying their reliance on and the extent of their use of LIBOR both in and beyond the balance sheet, before developing metrics to quantify the level of LIBOR exposure.
Read more here.