The Financial Conduct Authority (FCA) is warning firms to complete their transition away from LIBOR by the end of 2021.
For years, LIBOR has been embedded in the financial system, being used to calculate interest in corporate borrowing and intra-group transfers, and has also been adopted in accounting practices.
All firms are expected to be using alternative reference rates, such as SONIA, by the year’s end.
The Working Group on Sterling Risk-Free Reference Rates has recommended that, from the end of March 2021, sterling LIBOR is no longer used in any new lending or other cash products that mature after 2021.
Businesses with existing loans in sterling should have heard from their lenders about the transition, and those seeking a new or refinanced loan today should be offered a non-LIBOR alternative.
Tushar Morzaria, chair of the Working Group, said: “In line with the Working Group’s milestones for Q3 2020, lenders should now be in a position to offer loans based on SONIA or other LIBOR alternatives.
“I encourage all end users to engage with their lenders and trade associations as early as possible to ensure a smooth transition.”
Edwin Schooling Latter, director of Markets and Wholesale Policy at the FCA, said: “The end-game for LIBOR is now increasingly clear.
“Firms should now have everything they need to shift new business to SONIA and to complete their plans for transition of legacy exposures. There is no longer any reason for delay.”