Libor is deeply embedded in financial markets. Some $200 trillion of derivatives are tied to the U.S. dollar benchmark alone and most major global banks will spend more than $100 million this year preparing for the switch. Other players from corporations to hedge funds will also be affected, with many only beginning to shift from legacy contracts.

Bank of England Governor Andrew Bailey said this was now the final chapter, and theres no excuse for delays.

The BOE will hold executives to account for progress in the transition under the U.K.s regulatory regime for senior managers, according to people familiar with the matter. If firms fail to take appropriate steps, there is the potential for measures such as capital sanctions, though these would come further down the line.

Progress toward replacement benchmarks, such as the Secured Overnight Financing Rate in the U.S. and the Tokyo Overnight Average Rate in Japan, has been sluggish, and there are hopes Fridays announcement could accelerate the process particularly in the vast global derivatives market.

This was the much anticipated final piece of clarity the market needed to really kick on, said Kari Hallgrimsson, co-head of EMEA rates at JPMorgan Chase & Co. We would expect liquidity for trading the new rates to keep increasing from here on out.

Fridays decision is a cessation event and locks in the benchmarks fallback spread calculations, which for dollar Libor will be added to SOFR, the main U.S. replacement. Where firms have adhered to International Swaps and Derivatives Associations Libor protocol, their contracts will automatically transition to replacement rates the moment Libor ends, avoiding a cliff-edge scenario.

The delay in the most-used dollar Libor tenors notably the three-month benchmark is a concession to market concerns, but regulators remain adamant that dollar Libor shouldnt be used for new contracts after 2021. Firms should expect further engagement from their supervisors to ensure timelines are met, the FCA warned.

The Fed, for its part, is intensifying its scrutiny of banks efforts to shed their reliance on Libor, and has begun compiling more detailed evidence on their progress.

In the months ahead, supervisors will focus on ensuring that firms are managing the remaining transition risks, said Randal Quarles, vice chair for supervision at the Federal Reserve Board and chair of the Financial Stability Board.

While speculation about the announcements timing jolted the eurodollar market in December, the market reaction on Friday was subdued. The spread between June 2023 and September 2023 Eurodollars widened one basis point, as did the difference between December 2021 and March 2022 short sterling contracts.