Working Group updates (2019 onwards)
Next steps for LIBOR Transition in 2020: the time to act is now
On 16 January 2020, the Working Group on Sterling Risk-Free Reference Rates, Bank of England and FCA jointly published a set of documents, outlining priorities and milestones for 2020 on LIBOR transition.
The material published by the Working Group highlights important events over 2020 and clarifies actions that market participants should take to reduce their LIBOR exposure ahead of end-2021 and transition to alternative rates. Market participants are encouraged to refer to:
The Working Group’s priorities and roadmap for 2020 (PDF)
A paper setting out the Working Group’s views on the appropriate use of SONIA compounded in arrears for businesses and clients, and guidance for where the use of alternative approaches, such as a Term SONIA Reference Rate, may be necessary:
The use cases of benchmark rates: compounded in arrears, term rate and further alternatives (PDF)
A statement considering helpful ‘lessons learned’ from recent conversions of legacy LIBOR contracts:
Progress on the transition of LIBOR-referencing legacy bonds to SONIA by way of consent solicitation (PDF)
A factsheet for end-users summarising LIBOR transition and setting out why market participants need to act now:
Factsheet - Calling time on LIBOR: Why you need to act now (PDF)
The Working Group’s consultation (published in December) on credit adjustment spread methodologies for cash products, seeking feedback by 6 February 2020.
The Bank and FCA support the Working Group’s 2020 objectives and have published two documents designed to further catalyse transition efforts.
A letter from the FCA and the Bank to major banks and insurers setting out initial expectations of firms’ transition progress during 2020
A statement encouraging market makers to switch the convention for sterling swaps from LIBOR to SONIA on 2 March 2020, designed to help progress transition in the derivatives market.
Buy-side Sector Roundtable event
The Working Group on Sterling Risk-Free Reference Rates, in conjunction with the Bank of England and FCA, would like to invite buy-side market practitioners (e.g. traders, hedge fund managers, portfolio managers) to attend one of two roundtable events, on 24 and 31 January. The Working Group welcome interested practitioners with relevant expertise to join discussions on the buy-side barriers to LIBOR transition, dependencies on LIBOR and steps taken by firms to develop SONIA products.
If you would like to express your interest to attend, please contact RFR.Secretariat@bankofengland.gsi.gov.uk.
Consultation on credit adjustment spread methodologies for fallbacks in cash products referencing GBP LIBOR
The Working Group on Risk-Free Reference Rates is supportive of robust contractual fallback terms being in place to facilitate a smooth transition from LIBOR to SONIA. Such terms should include consideration of a credit spread adjustment to account for differences between LIBOR and SONIA. In the derivatives market, the International Swaps and Derivatives Association (ISDA) consulted on the spread methodology. This consultation resulted in agreement with regards to the appropriate methodology to be used for sterling LIBOR interest rate swaps. Following the progress made by ISDA, the Working Group has published a consultation paper for the sterling cash market (loans, bonds, and securitisations). This paper considers four methodologies that could be used to calculate the credit adjustment spread for fallback language in sterling cash instruments.
Sterling cash market participants are encouraged to feedback their answers to RFR.Secretariat@bankofengland.gsi.gov.uk by 6th February 2020.
Invitations for membership of the Tough Legacy; Cash Market Legacy Transition and Loans Flow Enablers Task Forces
The Working Group on Sterling Risk-Free Reference Rates would like to open invitations to join three new task forces, focusing on (i) enablers to moving new loans issuance away from GBP LIBOR, (ii) frameworks to support transition of legacy cash products, and (iii) providing market input regarding the ‘tough legacy’ of products that may prove unable to be converted or amended to include robust fallbacks. The invitations to these three Task Forces are open to interested market participants with relevant expertise.
In the case of the Tough Legacy Task Force, the work will be building on the work of the Regulatory Dependencies Task Force to deliver a near-term output establishing the expected extent of these issues and likely market outcomes in the event of LIBOR cessation, any particular factors which lead contracts to be less likely to be able to convert, and any potential mitigants suggested by market participants to address the risks identified.
The Cash Market Legacy Transition Task Force will produce a discussion paper to support awareness of potential approaches to either actively convert existing contracts to alternative rates or update those contracts to include robust fallback language. This will also explore a range of key considerations around these approaches and solicit feedback on whether there are areas where further clarity is needed.
The Loans Flow Enablers Task Force will support the achievement of the Working Group’s target of ceasing GBP Libor issuance by Q3 2020. It will include articulating key milestones, dependencies and potential blockers to achieving this target.
If you would like to express your interest in joining any of the three Task Forces, please contact the RFR Secretariat.
Invitation for Loan Management System and Treasury Management System providers
The Working Group on Sterling Risk-Free Reference Rates would like to welcome providers of Loans Management Systems and Treasury Management Systems to present on their readiness to incorporate compounded SONIA capability in their products. Presentations would be made primarily to the Infrastructure Sub-Group, though the main Working Group itself will be interested to hear directly from those that are most advanced in their implementation.
If you would like to express your interest, please contact the RFR Secretariat.
Letters to European Commission, Basel Committee on Banking Supervision, Prudential Regulation Authority and Financial Conduct Authority – October 2019
The Working Group on Sterling Risk-Free Reference Rates wrote to domestic (Prudential Regulation Authority and Financial Conduct Authority) and international (European Commission and Basel Committee on Banking Supervision) authorities regarding regulatory barriers to transition away from LIBOR. These letters request that the issues raised are considered and concrete actions are taken where necessary to ensure a smooth transition reducing risks to safety and soundness from continued reliance on a benchmark that is expected to cease at the end of 2021.
Senior Advisory Group Terms of Reference – September 2019
The Risk-Free Reference Rate Working Group has published the Terms of Reference for the Risk-Free Rates Senior Advisory Group. The Working Group determined it would benefit from a Senior Advisory Group to provide strategic support and senior engagement in firms to help achieve the Working Group’s deliverables and objectives.
Conventions for referencing SONIA in new contracts, and considerations for loans processing systems – August 2019
The Working Group on Sterling Risk-Free Reference Rates has published a statement and an aggregated summary of responses to the March 2019 Discussion Paper on SONIA conventions and referencing SONIA in new contracts. The discussion paper captured the most significant conventions identified at the time by the Working Group.
The purpose of this document is to continue to support market participants in their adoption of SONIA, and provide further information when referencing SONIA in bonds, loans and derivatives.
Letter to European Insurance and Occupational Pensions Authority (EIOPA) – July 2019
The Working Group on Sterling Risk-Free Reference Rates wrote to the European Insurance and Occupational Pensions Authority (EIOPA) to welcome its decision to add the monitoring of LIBOR transition to their 2019 priorities. The Working Group recognises EIOPA’s planned review of Solvency II in 2020, and would be grateful for further details regarding changes to the Solvency II risk-free reference rate. The letter would welcome EIOPA’s consideration of a pan-European taskforce to address regulatory barriers to LIBOR transition.
LIBOR transition event – June 2019
The Bank of England, FCA and Working Group jointly hosted a panel-based event ‘Last Orders: Calling Time on LIBOR’ on 5 June. Find out what was discussed, including the ‘Dear CEO’ thematic feedback, and watch a recording of the event here.
Progress on adoption of risk-free rates in sterling markets
On 15 May 2019, a statement was released on behalf of the Working Group to update on progress in the adoption of SONIA in sterling markets, including work currently underway to develop a term benchmark based on that risk-free rate.
- Statement: progress on adoption of risk-free rates in sterling markets (pdf)
- As mentioned in the statement, the benchmark administrators that have confirmed they are working on the development of a Term SONIA Reference Rate are FTSE Russell, ICE Benchmark Administration and Refinitiv. More recently, IHS Markit also confirmed they are working to develop a term SONIA rate. Each administrator presented on their respective work to the Working Group, and these presentations are available to download below.
SONIA task forces
The Working Group agreed to set up three priority task forces on SONIA to look at term rates, accounting treatment and regulatory dependencies.
We have welcomed the strong interest from experts in the market to be involved in these task forces. The expressions of interest received during our request period have been registered and the work of the task forces is now being taken forward.
If you would like more information, or to express your interest, please contact RFR.Secretariat@bankofengland.co.uk.
Letter to the International Accounting Standards Board – March 2019
On 18 March, the Working Group on Sterling Risk-Free Reference Rates wrote to the International Accounting Standards Board (IASB) to extends its support to the IASB on risk-free rate transition.
The Working Group welcomes the IASB’s decision to add the IBOR Reform and the Effects on Financial Reporting project to its Standard Setting agenda. The Working Group also welcomes the IASB’s decision to prioritise the analysis of the accounting issues affecting financial reporting. The letter sets out how the Working Group could provide support and outlines its assessment of the priority technical accounting issues that need to be addressed as soon as possible.
This letter is available to download below. If there are specific topics, questions or feedback you would like to share with us, please contact the RFR Secretariat on the following email address: RFR.Secretariat@bankofengland.co.uk.
Discussion paper on market conventions for SONIA - March 2019
The Working Group on Sterling Risk-Free Reference Rates has published its discussion paper on SONIA market conventions and further considerations for referencing SONIA.
The purpose of this discussion paper is to raise awareness on these market conventions for a broad range of market participants that seek to reference SONIA in new contracts and to support the preparedness of infrastructure service providers for the continued growth of SONIA referencing products. This discussion paper delivers a key milestone for the Working Group to communicate best practice for referencing SONIA across bonds, loans and derivatives.
The discussion paper is available to download below. If you would like to share any specific feedback or questions with us, please contact the RFR Secretariat on the following email address: RFR.Secretariat@bankofengland.co.uk.
Infrastructure Forum – 31 January 2019
The Infrastructure Forum enabled the RFRWG to engage with infrastructure and systems providers on key impacted markets and to better understand any outstanding issues - and potential solutions - for infrastructure to support the development of SONIA and other RFR linked products.
Infrastructure firms play a key role in supporting a successful transition to RFR and helping to reduce the financial stability risks arising from the widespread reliance of financial markets on LIBOR. The RFRWG (supported by the Bank of England and the Financial Conduct Authority) are grateful for the engagement received to date in this market-led transition effort.
Slides of the presentation and a summary note of the forum is available to download in the documents section below. If there are specific topics or questions that you would like to share with us, please contact the RFR Secretariat on the following email address: RFR.Secretariat@bankofengland.co.uk