The Financial Stability Board (FSB) report on reforming major interest rate benchmarks recommended that near risk-free reference rates (RFRs) should be developed as alternatives to Libor. The Bank has taken two steps to catalyse RFR reforms: it has begun work to reform SONIA, the existing unsecured reference rate for the sterling overnight indexed swap (OIS) market; and it has initiated a private-sector RFR working group for sterling markets.
The Bank became the administrator of the SONIA interest rate benchmark on 25 April with the Wholesale Markets Brokers’ Association (WMBA Ltd) acting as calculation and publication agent. There is no change at this time to the calculation methodology (including data inputs), or the dissemination of the benchmark data.
The Bank’s aim in reforming SONIA is to strengthen a benchmark which is considered critical for the sterling financial markets. Taking over administration of SONIA was a key first step in the process. The Bank will be transitioning SONIA to a new basis using data on unsecured overnight deposit transactions collected directly from banks and building societies by the Bank as part of its new sterling money market data collection. This reform is expected to be implemented in Q4 2017.
The Working Group on Sterling Risk-Free Reference Rates (RFRWG) was initiated by the Bank in response to the July 2014 FSB report on interest rate benchmark reform, with the objective of developing and implementing a sterling near Risk-Free Rate as an alternative to Libor. It is a private sector group comprised primarily of senior experts from major sterling swap dealers, with the Bank and FCA as ex-officio members. As such the views and outputs of the RFRWG are not necessarily endorsed by the Bank of England or FCA. The Bank provides the secretariat for the RFRWG.