Asset managers have made "significant progress" in the transition away from LIBOR-linked benchmarks, with two-thirds having invested in instruments linked to its replacement, SONIA, in 2019, the Investment Association (IA) has said.
In a statement, the IA said 92% of its members it surveyed had assessed their exposure to LIBOR, with 70% having reduced their exposure through 2019 and 65% having already invested in instruments based on SONIA, the new risk-free rate.
Around $350trn of financial products must transition away from the London Interbank Offered Rate (LIBOR) in favour of SONIA by the end of 2021.
The IA added that three-quarters (75%) of those it asked had an approved budget, in some cases in excess of £2m, in place to complete the transition.
Galina Dimitrova, director for investment and capital markets at the IA, said its members had "made significant progress in the transition away from LIBOR to SONIA and other alternative reference rates", despite criticism in September that they had been slow to act on the issue.
As recently as February 2020, the Financial Conduct Authority told asset managers to "act now" and "take immediate action" to phase LIBOR benchmarks out.
Dimitrova "strongly encourage[d] investment managers, counterparties and vendors to… ensure a smooth transition, and reduce the reliance on LIBOR in all investments, operations and activities".
The IA, in association with EY, is seeking to aid the transition of its members by publishing a joint report outlining the steps firms should take.
These steps include monitoring industry conventions and market liquidity; communicating with clients, counterparties and vendors; and embedding risk and controls across all transition-related activity in line with regulatory expectations.
Simon Turner, wealth and asset management partner at EY, said the transition represented "a major change in global financial markets".
"Although many investment managers may be progressing well with their preparations, there's still important work to be done over the next 18 months including how to manage sell-side dependencies and migrate ‘tough legacy' products," Turner added.
"Crucially, contracts need to be updated, conduct risk and controls need to be embedded and operational readiness needs to be established both within firms and with third-party vendors to ensure a trouble-free transition for our clients and end investors."
The shake-up has been looming ever since bank traders were found to have been manipulating LIBOR in the wake of the Global Financial Crisis, leading to around $9bn in fines, several convictions and ultimately the decision by regulators to phase out LIBOR altogether by 2021.