Some 65% of U.K. money managers have shifted to sterling overnight index average-based instruments ahead of the phaseout of the London interbank offered rate next year.
A survey by the Investment Association and Ernst and Young found that 92% of firms had assessed their exposure to LIBOR, 70% had reduced their exposure to LIBOR-based securities and 65% had invested in SONIA-based instruments.
LIBOR will be eliminated by the end of 2021, following a price fixing scandal in 2017. SONIA was named as its replacement rate in the U.K. by the Bank of England and the Financial Conduct Authority.
The survey showed that 75% of managers, running a combined £5.3 trillion ($6.8 trillion) in assets, have an approved budget in place to transition away from LIBOR. A quarter of these respondents' budgets were larger than £2 million.
The IA called on money managers to monitor market liquidity by asset class and jurisdiction to ensure their transition plans align with global developments. They should also communicate any transition-related concerns to clients.
Managers should be updating contracts and documentation to reflect the shift to SONIA and other risk-free replacement rates for other currencies, the IA said.
"With the FCA and BoE clear that LIBOR will cease to exist after the end of 2021, we strongly encourage investment managers, counterparties and vendors to work together in this final stretch to ensure a smooth transition, and reduce the reliance on LIBOR in all investments, operations and activities," Galina Dimitrova, director for investment and capital markets at the Investment Association, said in a news release Thursday.
Simon Turner, wealth and asset management partner at EY, added in the release: "Although many investment managers may be progressing well with their preparations, there's still important work to be done over the next eighteen months including how to manage sell-side dependencies and migrate 'tough legacy' products."
Mr. Turner added that firms need to ensure they are operationally ready in relation to third-party vendors to ensure a smooth transition for investors.
IA members manage a total £7.7 trillion in assets.
