The FCA and the PRA jointly published Dear CEO letters to banks and insurance firms in relation to their preparations for the transition from the London Interbank Offered Rate (LIBOR) to alternative risk-free rates (RFRs) by 2021. The purpose of this letter is to seek assurance that firms’ senior managers and boards understand the risks associated with the transition and are taking appropriate action now. While firms that have not received this communication from their supervision team are not within scope of this request, the regulators encourage all firms that currently rely on LIBOR to read and reflect on the letter. In a July speech, Andrew Bailey, Chief Executive of the FCA, has already warned of the wider implications to the financial services industry, including that “investment advisors and portfolio managers may need to be able to show that they have considered whether such [LIBOR-referencing] investments remain suitable for a particular client or portfolio if there is no clear and appropriate plan on what will happen in the event of discontinuation”.
The regulators ask banking and insurance firms to:
- provide the FCA and PRA with a board approved summary of their assessment of key risks relating to LIBOR discontinuation and action plans to mitigate those risks; and
- identify the senior manager responsible for responding to the Dear CEO letter and for ensuring the effective implementation of the transition plans.