On September 19, the UK Financial Conduct Authority (FCA) and UK Prudential Regulation Authority (PRA) published Dear CEO letters that they jointly sent to the chief executive officers (CEOs) of major banks and insurance companies regulated in the United Kingdom, regarding their preparations for the transition from the London Interbank Offered Rate (LIBOR) to alternative risk-free rates (RFRs).

The letters seek assurance that firms’ senior managers and boards understand the risks associated with the transition from LIBOR to RFRs and are taking appropriate action now to facilitate the transition before the end of 2021.

The FCA and PRA request that, by December 14, firms must provide them with a board-approved summary of their assessment of key risks relating to the discontinuation of LIBOR, together with details of planned actions to mitigate those risks. Each firm also must identify the senior managers who will oversee the provisions of the firm’s response to the FCA and PRA’s letter and the implementation of the firm’s transition plans.

In their letter to banking firm CEOs, the FCA and PRA explain that, in addition to participating in market-wide initiatives, they expect the largest banks to undertake a comprehensive risk assessment of the potential prudential and conduct impacts associated with transition in a range of different scenarios, including the discontinuation of LIBOR. The assessment is expected to be proportionate to the extent of firms’ usage of LIBOR and LIBOR-referencing instruments, and include a quantification of LIBOR exposures.

The FCA and PRA will review firms’ responses and consider appropriate next steps. Firms’ responses also will supplement monitoring by the Bank of England’s Financial Policy Committee of the risks associated with the discontinuation and transition of LIBOR.

The PRA also explains on a related webpage that firms not in receipt of a direct email from their PRA supervision team linking to the letters are not within the scope of the request to respond to the letter. However, all firms that currently rely on LIBOR are asked to read and reflect on the letter. The continued participation of market participants to develop new market structures, new technologies, standards and solutions to address the various transition challenges, will be an essential part of the success of the collective effort being undertaken.

The letter to banking firm CEOs is available here.