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Home > Markets and Payments > Working Group on Sterling Risk-Free Reference Rates

Working Group on Sterling Risk-Free Reference Rates

​In response to well documented cases of manipulation and false reporting of interest rate benchmarks, together with the decline in liquidity in interbank unsecured funding markets, the G20 asked the Financial Stability Board (FSB) to review critical benchmark rates, including sterling Libor, and develop plans for their reform.  The FSB published its report on interest rate benchmark reform in July 2014.  In order to ensure that benchmarks remain robust and are appropriately used by market participants, the FSB recommended a "multi-rate approach" with two broad objectives:

  • Strengthen existing benchmarks and other potential reference rates based on unsecured bank funding costs (including sterling Libor) by underpinning them to the greatest extent possible with transaction data.
  • Develop alternative, nearly risk-free, reference rates (RFRs).  Certain financial transactions, including many derivative transactions, are better suited to rates that are closer to risk-free.  Developing such alternative reference rates meets the principle of encouraging market choice.

In the UK, the Financial Conduct Authority is overseeing the reform of Libor (including sterling Libor) and the Bank of England is overseeing the development of sterling RFRs.

The Working Group on Sterling Risk-Free Reference was initiated to assist the Bank in meeting its objective of developing sterling RFRs.  It is a private sector group comprised of senior experts from major sterling swap dealers.

The key deliverables of the group are to:

  • Identify best practices for alternative sterling nearly risk-free, reference rates
  • Identify best practices for contract robustness
  • Propose reforms for existing sterling nearly risk-free, reference rates
  • Develop an adoption plan
  • Create a transition plan with metrics of success and a timeline

The Working Group has agreed an initial set of criteria for the selection of the sterling Risk-Free Rate, found under key resources below.

In May 2016 the Working Group published an Interim Report, summarising progress to date; this is found under key resources below.

In May 2017, the Working Group announced SONIA as its preferred near risk-free interest rate benchmark (RFR) for use in sterling derivatives and relevant financial contracts.

It should be noted that the views and outputs of the Working Group are not necessarily endorsed by the Bank of England or FCA.

Meeting agendas and minutes

Minutes of meetings will be published once agreed.