By Huw Jones

LONDON (Reuters) – A Bank of England-backed industry group has resisted a call by a lobby for the loan market to be flexible on a “significant” but long flagged milestone for scrapping the Libor benchmark interest rate.

Britain’s regulators have already set an end of March deadline for when no new loans maturing after Dec. 31 should be priced using the London Interbank Offered Rate or Libor, the tarnished interest rate being scrapped at the end of the year.

Replacing Libor after banks were fined billions of dollars for trying to rig the benchmark has proved one of the biggest challenges faced by financial markets for decades.

While progress has been good in derivatives, loans have lagged somewhat as businesses come to grips with the task.

The Loan Market Association asked the BoE-backed industry group in January if the end of March milestone “should be made more flexible” so that “funds continue to flow to the real economy,” minutes of the meeting published by the BoE on Wednesday showed.

The Loan Market Association’s members include commercial and investment banks, institutional investors, law firms, service providers and rating agencies.

The Bank of England-backed group’s chair, Barclays finance director Tushar Morzaria, expressed “reluctance to relax such a significant milestone”, the minutes showed.

Edwin Schooling Latter, a senior official at Britain’s Financial Conduct Authority, said there was a “clear expectation” that lenders should be capable of offering loans priced off the BoE’s overnight Sonia rate “at scale” from the end of March. Sonia is the rate that replaces Libor in Britain.

The group should be “trying to provide solutions to any market difficulties, rather than relaxing a long-standing milestone”, Loan Enablers Task Force Chair Jamieson Thrower said.

The BoE’s Alastair Hughes said the lending market should not be dictated to by the progress of the slowest firms and supervisors would take a “keen interest” in any remaining sterling Libor lending after the end of March.

(Reporting by Huw Jones. Editing by Jane Merriman)