© Reuters. FILE PHOTO: FILE PHOTO: A general view shows the Bank of England and the Royal Exchange Building in London
By Huw Jones
LONDON (Reuters) – Bankers in charge of ensuring that the tarnished Libor interest rate benchmark is ditched by an end-December deadline should lose their bonuses if they fail to make progress, the Bank of England said on Friday.
Libor is being scrapped after banks in Britain and elsewhere were fined billions of dollars for trying to rig what was once dubbed the world’s most important number.
Contracts from mortgages to business loans worth $260 trillion globally are still priced off the Libor interest rate, which is being replaced in Britain by a new one known as Sonia.
Each bank has to nominate a senior manager to oversee the phasing out of Libor, or London Interbank Offered Rate, by the end of the year in an orderly way.
“As a key regulatory priority, we expect that this transition forms part of the performance criteria for determining their variable remuneration,” BoE and Financial Conduct Authority officials said in a joint letter to CEOs of Britain’s banks and other financial firms.
The letter urged the finance industry to accelerate some of the work on ending the use of Libor, and said regulators would use their meetings with firms to assess progress on replacing it with the BoE’s overnight Sonia rate.
“As previously indicated, we are keeping a range of supervisory tools under review for use where we see either insufficient progress, or incidents of poor risk management or governance of transition,” the letter said.
From next Thursday, any new sterling denominated loans, bonds, securitisation or derivatives still using Libor that mature beyond Dec. 31 would be examples of poor risk management and governance, the letter said.
“We expect firms to intensify efforts to execute plans to transition the stock of legacy Libor-linked contracts ahead of confirmed cessation dates of panel bank Libor, wherever it is feasible to do so,” it added.