FCA, Bank of England Push for USD Libor Switch

With the UK market set to switch to Sonia from Libor for its reference rate, the country’s regulator and central bank have issued a release urging market participants to prepare for a similar switch in the US dollar market.

Following close engagement with market participants, and to support the US-led ‘Sofr First’ initiative, the Financial Conduct Authority and Bank of England have explicitly stated their support and encouragement to liquidity providers in the US dollar linear interest rate swaps market to adopt new trading conventions for inter-dealer trading based on Sofr instead of Libor from 26 July this year. This is to facilitate a shift in market liquidity towards Sofr, bringing benefits for a wide range of users as they move away from Libor.

US regulators has said that markets should cease entering into new contracts based upon Libor “as soon as practicable” and no later than the end of 2021. It has named 26 July 2021 as the date for inter-dealers to switch, and now the FCA and Bank of England have also named that date as when UK markets should switch.

“In line with the MRAC sub-committee’s recommendation, the FCA and the Bank of England support and encourage all participants in the interdealer US dollar interest rate swaps market to take the steps necessary to prepare for and implement these changes to market conventions on 26 July and shift liquidity away from USD Libor to Sofr,” they say in a release.