The FCA and PRA have published a joint statement on firms’ preparation for the transition from LIBOR to overnight risk-free rates (RFRs). The joint statement sets out key themes, good practice and next steps for firms.
The joint statement follows the Dear CEO letter that was sent to major banks and insurers in September 2018 asking for details of the preparations and actions they are taking to manage the transition. Having reviewed the responses, the regulators have made observations across eight key areas including:
- comprehensive identification of reliance on and use of LIBOR;
- quantification of LIBOR exposures;
- granularity of transition plans and their governance;
- identification and management of prudential risks associated with the transition;
- identification and management of conduct risks associated with the transition;
- scenario planning;
- the role of market participants in supporting transition; and
- transacting using new risk free rates and building in fallbacks.