Following the letter published on December 18, 2019, to the Chair of the Working Group on Sterling Risk-Free Reference Rates, which provided clarification on the impact that the LIBOR transition is likely to have on the prudential requirements for banks, the Prudential Regulation Authority has published a statement providing clarity on the implications of LIBOR transition for contracts in scope of the PRA’s rules on Contractual Recognition of Bail-In and Stay in Resolution. The PRA states that, where the sole purpose of an amendment to a liability or a financial arrangement is to cease using LIBOR, the amendment should not be considered a material amendment under the PRA rules. However, the PRA considers that firms should consider:

1. adding bail-in and stays terms into documentation for a third-country law-governed liability or financial arrangement that is amended for LIBOR transition; and
2. whether having non-Common Equity Tier 1 own fund instruments governed by third-country law without statutory or contractual recognition of U.K. bail-in rules would create obstacles for resolution.

View the PRA’s statement.

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