Transition from LIBOR to risk-free rates

LIBOR is an interest rate benchmark used in financial markets which is being phased out. We are supporting firms to use alternative rates by the end of 2021.

Overview

LIBOR is one of the main interest rate benchmarks used in financial markets. It determines interest rates for financial contracts around the world, worth trillions of pounds.

Since the global financial crisis in 2008-09, activity in the markets that LIBOR measures has reduced. The low volume of underlying transactions means that LIBOR is no longer sustainable and has put its future viability in doubt. In March 2021, the Financial Conduct Authority (FCA) confirmed that most LIBOR panels would cease immediately after 31 December 2021.

Risk-free rates (or RFRs), which are robust alternatives to LIBOR, are already available. These include the Sterling Overnight Index Average (SONIA) benchmark, which we produce.

We’ve been working closely with the Financial Conduct Authority (FCA) and market participants to support a smooth transition to these alternatives by the end of 2021.

The industry-led Working Group on Sterling Risk-Free Reference Rates (the Working Group) leads this work in sterling markets. It produces guidance and support for both financial and non-financial firms to help them with the transition. The Bank of England and the FCA participate as ex-officio members and provide administrative support to the group.

The FCA also provides guidance on the LIBOR transition.

Bank of England LIBOR news, events and publications

June 2021

We issued a joint statement with the FCA supporting the US-led ‘SOFR First’ initiative. The FCA and Bank of England support and encourage market participants in a switch to SOFR in US dollar linear interest rate swap markets from 26 July this year. This is to facilitate a shift in market liquidity towards SOFR, bringing benefits for a wide range of users as they move away from LIBOR.

May 2021

We published a consultation paper on our proposal to modify the scope of contracts which are subject to the derivatives clearing obligation, to reflect ongoing reforms to interest rate benchmarks. The consultation closes on 14 July 2021.

The Governor, Andrew Bailey, joined the ARRC’s second SOFR Symposium event to discuss a sustainable transition from LIBOR. You can read the speech he gave at the event: 'Descending Safely: Life after LIBOR'. 

The third edition of the Regulatory Initiatives Grid notes LIBOR transition as a key initiative in the regulatory landscape.  

We issued a joint statement with the FCA supporting and encouraging market participants in a switch to SONIA in the sterling exchange traded derivatives market from 17 June this year. This is to facilitate a further shift in market liquidity towards SONIA, bringing benefits for a wide range of users as they move away from LIBOR. 

March 2021

We issued a joint statement with the FCA supporting and encouraging liquidity providers in the sterling non-linear derivatives market to adopt new quoting conventions for inter-dealer trading based on SONIA instead of LIBOR from 11 May this year. This is to facilitate a further shift in market liquidity toward SONIA, bringing benefits for a wide range of users as they move away from LIBOR.

The Prudential Regulation Authority (PRA) and FCA have written a joint letter to the CEOs of supervised firms setting out supervisory expectations of the transition from LIBOR to risk free rates. The PRA and FCA expect all firms to meet the Working Group’s milestones and the targets of other working groups as appropriate. The letter sets out a list of priority areas where further action by firms is necessary to prepare for the cessation of LIBOR.

Following the FCA's announcement confirming cessation dates for panel bank LIBOR settings, we issued a revised Market Notice regarding the use of LIBOR-linked collateral used in the Sterling Monetary Framework.

Alongside the Working Group and the Financial Conduct Authority (FCA), we welcomed a proposed market standard on the use of Term SONIA reference rates, published by the FICC Markets Standards Board. We have encouraged widespread adoption of SONIA compounded in arrears in derivative markets in particular, keeping use of Term SONIA limited to specific use cases primarily in cash markets, to provide the most robust foundations for sterling interest rate markets.

We released a joint statement with the FCA, alongside the announcement of end dates on which panel bank submissions for all LIBOR settings will cease. At the same time, ISDA confirmed the cessation announcement would trigger the fixing of the ‘spread adjustments’ to be used in its IBOR fallbacks. Regulated firms should expect further engagement from their supervisors at both the Prudential Regulation Authority (PRA) and the FCA to ensure industry timelines for transition are met.

January 2021

Alongside the Working Group and the FCA, we released a statement to accompany an update to the Working Group’s priorities and roadmapOpens in a new windowOpens in a new windowOpens in a new windowOpens in a new window, intended to help businesses to finish planning the steps they will need to take in the coming months.

The PRA published a consultation paper setting out its proposed approach to deep, liquid and transparent assessments and the transition of Solvency II technical information from LIBOR to SONIA in 2021. The consultation closes on 31 March 2021.

  • December

    We joined the Risk.net LIBOR Telethon on 8 December 2020. You can read the speech our Executive Director for Markets, Andrew Hauser, gave at the event: ‘Bowing out gracefully: LIBOR’s retirement draws near’.

    Our Financial Policy Committee said in its Financial Stability Report that it remains essential for firms to end reliance on LIBOR, and welcomed the recent release of consultations from IBA on proposed cessation dates for all LIBOR settings and from the FCA on a potential approach to use of proposed new powers to support an orderly wind-down of LIBOR benchmarks.

    September

    We hosted a webinar event ‘Is your firm prepared for LIBOR transition?’ in collaboration with the Association of Corporate Treasurers and the Confederation of British Industry. You can watch the webinar and read the speech our Executive Director for Markets, Andrew Hauser, gave at the event: ‘From LIBOR to SONIA: a bridge to the future’.

    We published a Bank Overground post looking at why firms need to accelerate in the transition away from LIBOR benchmarks.

    Alongside the FCA, we issued a statement encouraging market makers and interdealer brokers to switch from quoting LIBOR to SONIA as the default price for sterling swaps from 27 October 2020.

    August

    Our Financial Policy Committee said in its Financial Stability Report that it is essential for firms to end reliance on LIBOR benchmarks before the end of 2021 because after that, those benchmarks become unavailable at short notice. Moving away from using LIBOR would give firms more certainty than relying on regulatory action enabled by proposed new powers for the FCA under the Financial Services Bill 2020.

    We facilitated an online roundtable event, hosted by HM Treasury and the FCA. We asked market participants to send in their questions about HMT’s plans to enhance the FCA’s tool-kit for wind-down of critical benchmarks.

    July

    We hosted a webinar event ‘LIBOR: entering the endgame’. You can watch the webinar and read the speech our Governor, Andrew Bailey, gave at the event.

    The Prudential Regulation Authority (PRA) published a statement on the implications of benchmark reform for rules related to resolution.

    May

    In its interim Financial Stability Report, our Financial Policy Committee recognised a need for short-term reprioritisation, in light of the Covid-19 pandemic. However, the market volatility during March 2020 highlighted the long-standing weaknesses of LIBOR benchmarks, reinforcing the importance of completing the transition to alternative rates by the end of 2021.

    The PRA published a statement on the reprioritisation of its work due to the impact of Covid-19. As part of this, some data reporting and firm meetings on LIBOR were temporarily suspended, with full supervisory engagement on LIBOR resuming from 1 June 2020.

    In light of this short-term reprioritisation, we issued a revised Market Notice regarding the use of LIBOR-linked collateral, maturing after 31 December 2021, used in the Sterling Monetary Framework. From 1 April 2021, the Bank will make newly issued LIBOR-linked collateral maturing after end-2021 ineligible and progressively increase the haircuts on existing LIBOR-linked collateral it lends against.

    March

    Together with the FCA, we wrote to CEOs of trade associations setting out how LIBOR transition could affect trade association members and called for help in raising awareness of transition amongst their networks.

    February

    Our Executive Director for Markets, Andrew Hauser, set out in a speech two new initiatives from the Bank aimed at further supporting risk-free rate transition in sterling markets.

    This included the February Market Notice that the Bank would begin increasing haircuts on LIBOR-linked collateral it lends against from 1 October 2020.  However in light of the Covid-19 pandemic, this was postponed to begin from 1 April 2021.  

    January

    The PRA and FCA jointly wrote to senior managers responsible for LIBOR transition in regulated firms. It set out the progress expected from these firms in 2020.

    Together with the FCA, we issued a statement encouraging market makers and interdealer brokers to switch from LIBOR to SONIA as the default pricing approach for sterling swaps trading from 2 March, to transition progress in the derivatives market. Due to market volatility experienced during March, this date was later rescheduled for 27 October.

  • In December 2019, our Deputy Governor for Prudential Regulation, Sam Woods, wrote a letter to the Chair of the Working Group in response to issues raised by the Working Group, including in relation to regulatory capital, outlining actions being taken by the PRA to help facilitate a smooth transition away from LIBOR.

    In September 2019, we published a short Bank Overground post looking at how prepared the markets were for the end of LIBOR.

    In June 2019, our Executive Director for Markets, Andrew Hauser, set out in a speech why it makes business sense to move from LIBOR.

    Also in June, we launched a consultation paper seeking feedback on our proposed approaches to managing LIBOR-linked collateral used in the Sterling Monetary Framework, and outlined the steps the Bank are taking to reduce our own LIBOR exposure.

    In early June 2019, we took part in a conference on LIBOR transition to alternative risk-free reference rates. You can listen to a recording of the event and read a speech by our Deputy Governor for Markets & Banking, Dave Ramsden, who spoke about ‘calling time on LIBOR’.

    In September 2018, the PRA and FCA wrote a joint letter to CEOs of the main supervised banks and insurers asking what they were doing to manage the transition from LIBOR to alternative rates. The following June, the PRA and FCA shared a summary of key themes and good practice based on the feedback the firms provided.

    In May 2018 our former Governor, Mark Carney, spoke about the transition banks were making from LIBOR to the SONIA benchmark.

This page was last updated 24 June 2021

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