With Covid-19 and Brexit, the past twelve months have thrown businesses many challenges and changes, especially for retailers navigating their businesses through the ongoing uncertainties. However, if there is one thing you can be sure will happen in 2021, it’s the end of LIBOR* in the sterling market.

Public authorities have announced that the LIBOR benchmark lenders use to calculate the interest rate for financial products will end and move to more robust benchmark rates. As LIBOR is the most common interest rate benchmark in the UK this will affect a significant number of businesses. 

In the UK, the Bank of England and the Financial Conduct Authority (FCA) have set out the need for this transition, with the regulator confirming on 4 March that LIBOR will discontinue across most currencies at the end of 2021. While the finance industry has been working towards this end date for some time, the announcement provides renewed certainty for both lenders and borrowers on the coming milestones.

From 1 April 2021 new sterling loans will no longer be based on LIBOR, and any existing LIBOR based loans or contracts will need to be switched by 31 December 2021. As well as commercial loans, LIBOR can be found in leasing and servicing contracts, commercial contracts and company pension schemes. So now is the time for businesses to review LIBOR exposure and mitigate any unnecessary disruption to their business.

To help prepare for this change, UK Finance, working with the CBI, ACT, ICAEW and LMA, have developed a simple introductory guide to transition. The Guide recommends businesses review LIBOR mentions (in both products and accounting systems), asses the implications different rates could have, and plan on how to transition with minimum impact. Lenders will be in touch with impacted borrowers to discuss plans for transition, so being familiar with exposure and the alternative rates will make these conversations easier.

For now, the clock is ticking, and the move to safer, more transparent interest rates for businesses has started. Make sure your business is prepared, put LIBOR on your list of priorities for 2021.

For further information on the LIBOR transition please see UK Finance’s guide for business customers on the discontinuation of  LIBOR or the Working Group for Sterling Risk-Free Reference Rates webpage on key resources for firms transitioning from LIBOR.

*London Interbank Offered Rate