The USD LIBOR panel ceases at end-June 2023: Are you ready?

The Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) have each published a joint press statement relating to the transition away from the London InterBank Offered Rate (LIBOR) to alternative, risk-free reference rates (ARRs) such as the Sterling Overnight Index Average (SONIA).
Therein, both regulators remind of the fact that there are less than 90 days left until the final US dollar LIBOR tenors will cease to exist (termination will be on June 30, 2023). Financial market participants are highly recommended to
– switch over contracts currently still referencing US dollar LIBOR to alternative rates BEFORE the cease of the panel;
– prepare for the new US dollar fallbacks, „including planned CCP conversion events and operationalisation of the ISDA 2020 IBOR Fallbacks Protocol“; and
– switch over any legacy contracts still referencing the synthetic 3-month GBP LIBOR to SONIA, as the publication of the synthetic LIBOR rate will be terminated on March 31, 2024.
Additionally, the regulators remind of the fact that any successor rates for financial contracts should not involve credit risk sensitive rates as these rates are not „suitable for widespread use as a benchmark“. Furthermore, UK market participants should limit the use of the Secured Overnight Financing Rate (SOFR) whose use cases in the recommendations of the Alternative Reference Rates Committee are tailored to the U.S. market. Instead, they should rely on corresponding SONIA term structures in accordance with the recommendations of the Working Group on Sterling Risk-Free Reference Rates.
Finally, the regulators have published a planned central counterparty conversion timeline for transferring outstanding LIBOR US dollar contracts to risk-free ARRs. The timeline is shown in the table below.
Figure 1: CCP Timeline for transferring outstanding LIBOR US dollar contracts to risk-free ARR