Many of the U.K.'s banks may not be able to stop issuing loans linked to the discredited London interbank offered rate, or Libor, by October as they are still contending with critical software upgrades required to use alternative reference rates, Reuters reported Jan. 13, citing industry sources.
Executives from financial technology firms Finastra Global Ltd. and Fidelity National Information Services Inc., that supply loan management software to financial institutions, told Reuters that not all banks will be ready by the deadline due to the amount of time required for testing the software upgrades, which can take up to 18 months. They added that only a few loans tied to alternative rates such as the sterling overnight index average rate, or Sonia, had been issued so far.
The two software suppliers indicated that small banks have been slower in upgrading their systems, according to the report.
Despite the October target being a mutually agreed-on goal rather than a regulatory mandate, the U.K. Financial Conduct Authority told the newswire it would not look favorably on lenders and borrowers coming up late in abandoning Libor.
According to the report, the regulator's director of markets and wholesale policy, Edwin Schooling Latter, said banks that miss the target date will need to clearly show how they plan to quickly upgrade their systems. He added that companies that have no plans to end their dependence on Libor post-deadline will be scrutinized by the watchdog to see how they are managing risks, Schooling Latter added.