Issuers of sterling LIBOR-linked loan products will have an additional six months before they must cease issuance of loans that expire after the end of 2021, due to the ongoing coronavirus crisis, according to a joint update Wednesday by the U.K. Financial Conduct Authority, the Bank of England and the Working Group on Sterling Risk-Free Reference Rates.
In loan markets, lenders still should seek to make products based on the sterling overnight index average, or SONIA, available before the end of third quarter this year, the FCA said.
But amid the pandemic the regulators said they recognized that it will not be feasible to complete the transition away from LIBOR by the original end-of-third-quarter target that was set at the beginning of this year.
Responding to the update, Rupert Lewis, head of banking litigation at law firm Herbert Smith Freehills said in an emailed comment: "A key part of the jigsaw to move the loan market, which is behind the curve on LIBOR transition to new risk-free rates is to stop writing new loans linked to LIBOR."
Mr. Lewis said that pushing the milestone by six months might provide some "breathing space" for now, but it will ramp up the pressure on firms to by the end of 2021.
"This delay will have the effect of increasing the pool of loans referencing LIBOR when the benchmark ceases. In turn, this will increase the litigation risks for legacy contracts, particularly where fallbacks in new loans require renegotiation when LIBOR ends," Mr. Lewis added.