Working Group on Sterling Risk-Free Reference Rates

A working group of market participants formed to catalyse the transition from the interest rate benchmark LIBOR towards SONIA in sterling markets.

Overview

The industry-led Working Group on Sterling Risk-Free Reference Rates (the Working Group) is supporting the transition from LIBOR to SONIA (Sterling Overnight Index Average) in sterling markets.

The Working Group is formed of a diverse group of market participants and trade associations representing relevant sectors and markets. It is chaired by Tushar Morzaria (Barclays).  The Bank of England and the Financial Conduct Authority (FCA) participate as ex-officio members and provide administrative support to the group.

You can read its:

The Working Group also benefits from strategic support and senior engagement with firms through a Senior Advisory Group. You can read its terms of reference.

Please note that views and outputs of the Working Group do not constitute guidance or legal advice from, and are not necessarily endorsed by, the Bank of England (including the Prudential Regulation Authority (PRA)) or the FCA.

Latest Working Group announcements and publications

July 2021

Active transition of legacy GBP LIBOR loan contracts – Timelines and considerations for borrowers

The Working Group published a paper to assist borrowers in understanding and achieving the end-Q3 milestone for active transition of legacy GBP LIBOR loans. The Working Group encourages timely engagement with relevant parties and the preparations needed to ensure readiness for the recommended milestone on active transition. 

May 2021

Recommendation of Successor Rate for fallbacks in bond documentation referencing GBP LIBOR

The Working Group published a statement recommending the use of overnight SONIA, compounded in arrears, as the successor rate recommended to replace GBP LIBOR for the purposes of the operation of fallbacks in bond documentation that envisage the selection of a recommended successor rate. 

April 2021

Active transition of legacy GBP LIBOR contracts & operational considerations for fallbacks in uncleared linear derivatives

The Working Group published a statement setting out a range of considerations to help market participants, across GBP bond, loan and derivative markets, assess and prioritise the active transition of legacy GBP LIBOR contracts to SONIA. For derivative market participants who may rely on ISDA’s IBOR fallbacks, the Working Group has also published a paper providing infrastructure and operational considerations to inform their planning and preparation for the operationalisation of fallbacks in non-cleared linear GBP LIBOR derivatives. The statement and paper are intended to assist market participants in understanding and balancing the benefits, costs and risks of active transition and reliance on fallbacks in relation to their own circumstances.

Letter to HM Treasury on safe harbour provisions

The Chair of the Working Group wrote to HM Treasury, seeking an update on the Government’s approach to safe harbour provisions following its recent consultation. The Economic Secretary to the Treasury, John Glen, responded on the 7 May.

Supporting transition from LIBOR in sterling structured products

The Working Group published a paper considering how a sterling structured products market could be designed using compounded in arrears SONIA, and to support the transition of legacy structured products where GBP LIBOR is in use. As many structured products are pre-packaged structured finance investments with a derivative component, the paper builds on the work to date on transition in areas relating to the bond market and derivatives market. It is intended to support issuers, manufacturers, distributors and investors in their plans to meet the Working Group’s milestones set out in its roadmap and priorities for transition by end-2021.

March 2021

Working Group publishes summary of responses to its consultation on successor rate to GBP LIBOR in legacy bonds referencing GBP LIBOR

The consultation was open from 2 February 2021 until 16 March 2021 and attracted 24 responses from a range of market participants. This paper summarises the responses received. The Working Group will discuss these results at its forthcoming meetings, including consideration of potential next steps to help catalyse further transition in sterling bond markets based on this feedback.

Working Group welcomes proposed market standard on use of Term SONIA

Alongside the Bank of England and the FCA, the Working Group 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.

Working Group welcomes announcements on the end of LIBOR

The Working Group welcomes announcements made by the FCA and ICE Benchmark Administration (IBA) confirming cessation dates for panel bank LIBOR, and a related statement by ISDA confirming the fixing of the ‘spread adjustments’ to be used in its IBOR fallbacks. With limited time remaining, the Working Group encourages firms to execute their transition plans rapidly and ensure they are ready for the end of GBP LIBOR ahead of the end of 2021.

February 2021

Supporting the transition away from the use of LIBOR in the GBP loan market

The Working Group has published two papers to support market participants in moving new and refinanced loan issuance away from GBP LIBOR and meet the Working Group’s recommended milestone to cease new issuance of GBP LIBOR-linked loans by the end of March 2021.

The first of these papers is a Question and Answer document relating to the end-Q1 2021 recommended milestone. It addresses key questions market participants may have in relation to the milestone and highlights potential considerations to take into account for the transition away from GBP LIBOR. This document was updated in June 2021 to include a new Q8 concerning existing facilities with extension options. The second paper is a Best Practice Guide in relation to conventions for new GBP SONIA referencing loans (including refinancing and renewals) and for the transition of legacy GBP LIBOR referencing loans, covering bilateral loans, syndicated loans and other loans where GBP LIBOR is in use. It consolidates relevant information from previous Working Group publications to provide a single point of reference for best practice for GBP loans maturing after the end of 2021. The paper was updated in March 2021 to include a new Appendix 3 which is intended to provide additional technical guidance and support system implementation for both lenders and borrowers, and was extended further in June 2021 to cover calculation of SONIA-based cost of carry for loans traded on the secondary market. A new Appendix 3F on compounded SONIA-based indices was added in July 2021.

Path to ending new use of GBP LIBOR-linked derivatives 

The Working Group has published a paper to support market participants in meeting its upcoming recommended milestones for ending new use of GBP LIBOR in derivatives. The first of these is to cease initiation of new GBP LIBOR-linked linear derivatives by the end of March 2021, except for risk management of existing positions.

The paper details the limited circumstances when it may be appropriate to enter into new GBP LIBOR-linked derivatives after the relevant milestones, for risk management of existing positions and to support transition flows for active conversion.  The Working Group’s key expectation is that any new GBP LIBOR-linked derivatives expiring after the end of 2021, entered into after the recommended milestones, be based on SONIA. 

Supporting transition in sterling non-linear derivatives referencing GBP LIBOR ICE Swap Rate (ISR)

The Working Group published a paper setting out a potential methodology using SONIA-based rates which could form a replacement for GBP LIBOR ISR. This paper is intended to support market participants to transition non-linear derivatives, structured products and cash market instruments that reference the GBP LIBOR ISR, in line with the target milestones in the Working Group’s roadmap and priorities for 2021.

Consultation on successor rate to GBP LIBOR in legacy bonds referencing GBP LIBOR

The Working Group published a consultation paper in order to seek feedback on whether it would be helpful for the Working Group to make a recommendation on a successor rate to GBP LIBOR for bonds upon the occurrence of a permanent cessation event or a pre-cessation event, and to seek feedback on the successor rate to be recommended.

This Consultation Paper will remain open until 16 March 2021. The Working Group strongly encourages market participants to respond by this deadline. It hopes to receive feedback from as broad a range of market participants as possible, including from different sectors and product categories.

January 2021

Update to Working Group roadmap and priorities for 2021

After many years of preparation, 2021 is the critical year for firms to complete their transition away from LIBOR. In support of this, the Working Group has published an update to its priorities and roadmap for the final year of transition to help businesses to finish planning the steps they will need to take in the coming months. You can also read the News Release.

The roadmap will be updated frequently to reflect the latest publications and developments related to LIBOR transition.

Letter to Bloomberg Index Services Limited (BISL)

The Chair of the Working Group wrote to BISL to facilitate a better understanding of the access of cash market participants, particularly for end users, to its published credit adjustment spreads based on the ISDA historical five year median approach.

The letter requests BISL’s assistance to enhance its current IBOR Fallbacks Factsheet to provide further clarity on matters relevant to cash market participants.

You can read BISL’s response on its dedicated LIBOR transition page

Working Group papers by category 

Working Group background

The Working Group was originally set up in 2015 in response to the Financial Stability Board's recommendation Opens in a new window to develop and adopt robust risk-free rates (RFRs) to provide an alternative to LIBOR-style reference rates.

In 2017, the Working Group published a white paper: SONIA as the risk-free rate and approaches to adoption Opens in a new window. This paper proposed SONIA as the preferred alternative rate for sterling markets and sought feedback on the best approach to its adoption. It hosted an industry roundtable, which confirmed strong support for SONIA Opens in a new window as the preferred sterling risk-free rate.

In view of concerns about the sustainability of LIBOR beyond the end of 2021, the Working Group was reconstituted at the start of 2018 with an extended mandate and broader participation, focusing on catalysing a transition to using SONIA as the primary sterling interest rate across bond, loan and derivatives markets by the end of 2021.

You can keep up to date by signing up for the Working Group’s monthly newsletter and following the Working Group LinkedIn page Opens in a new window.

Membership

The membership of the Working Group includes banks and dealers, investment managers, non-financial corporates and other sterling issuers, infrastructure firms and trade associations.

We have published the full list of member firms Opens in a new window Opens in a new window and membership selection criteria Opens in a new window Opens in a new window.

The Working Group invites further expressions of interest in participating in transition work either as members of technical sub-groups or market sector forums to share views on aspects of the transition.

This includes expressions of interest from professional services firms, in particular accountancy firms, law firms and financial consultancies where the work would be on a pro bono basis to provide expert input to the working group and related sub-groups.

For more details, or to express an interest in participating in any of the Working Group’s work, please contact RFR.Secretariat@bankofengland.co.uk.

This page was last updated 09 July 2021

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