31 LIBOR settings have ceased permanently
The industry-led Working Group on Sterling Risk-Free Reference Rates (the Working Group) is finalising the transition away from LIBOR to SONIA (Sterling Overnight Index Average) in sterling markets, and to recommended risk-free rates in non-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 Sarah Boyce (Association of Corporate Treasurers). 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:
- terms of reference Opens in a new window Opens in a new window Opens in a new window Opens in a new window Opens in a new window Opens in a new window Opens in a new window Opens in a new window Opens in a new window
- minutes of its meetings
- list of firms with membership and membership selection criteria
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
April 2023Market participants must not lose focus on continued transition of LIBOR-linked contracts as we approach the cessation of USD panel-bank LIBOR at end-June 2023. The Working Group, Bank of England and FCA released a joint statement encouraging market participants to: actively transition USD LIBOR contracts before end-June 2023; ensure readiness for key operational events, including planned CCP conversion events; ensure they transition to the most robust RFRs; and, continue to actively transition any remaining legacy contracts from synthetic GBP LIBOR to SONIA.
February 2022The transition away from LIBOR reached a critical step on 31 December 2021, as most LIBOR settings were published for the final time. The Working Group, Bank of England and FCA published a joint statement reflecting on achievements in sterling markets, setting out what more needs to be done and providing an update on how the Working Group will operate in the future.
Update on contract continuity legislation to support the wind-down of critical benchmarks
On 15 December, the Critical Benchmarks (References and Administrators’ Liability) Act received royal assent and became law. The Act provides legal certainty as to how contractual references to a critical benchmark should be treated once the FCA provides for that benchmark to be published with a changed methodology. The Chair of the Working Group previously wrote to HM Treasury, seeking an update on the Government’s approach to safe harbour provisions following its earlier consultation. In May, the Economic Secretary to the Treasury, John Glen, responded confirming the Government’s plans to bring forward further legislation.
Statement encouraging continued focus ahead of end-2021
The Working Group published a statement urging the continued focus of market participants ahead of the cessation of most LIBOR panels at end-2021. The Working Group encourages firms to: use SONIA linked contracts, where appropriate, for all new business; continue to pursue active transition, where feasible, and; ensure readiness for upcoming operational events. Further, we highlight recent regulatory guidance on ceasing new use of USD LIBOR by end-2021, with some limited exceptions.
Working Group papers by category
To support firms in planning a smooth transition from LIBOR in sterling markets, the Working Group regularly published and updated statement of priorities and roadmap for transition. This was updated for the final time in February 2022 to reflect the cessation of the sterling LIBOR panel. It also makes statements in relation to key developments in transition in sterling markets.
In derivative markets, ISDA has led work at the request of the Financial Stability Board (FSB) to make robust fallback language available for both new contracts, and for legacy contracts, by adhering to its IBOR Fallbacks Protocol or bilaterally agreeing to amend existing contractual terms. In a joint statement with the Bank of England and FCA, the Working Group encouraged early and widespread adoption of ISDA’s Protocol.
In relation to non-linear derivatives, between December 2019 and February 2020 the Working Group conducted a survey of 15 dealers to understand preferences on conventions for the trading of interbank SONIA swaptions and caps and floors. From this, the Working Group identified a clear need for further transition work on non-linear derivatives and established a dedicated non-linear derivatives Task Force (NLTF). Following end-2021, the Working Group closed the NLTF having concluded it had met its objectives.
Working Group Sub-Groups and targeted Task Forces have been initiated to identify and consult on appropriate solutions to overcome specific transition issues affecting bond and loan markets in the transition to recommended risk-free reference rates.
For existing LIBOR-linked bonds and loans, the Working Group and authorities have stressed the importance of actively transitioning legacy products, where possible. The FCA has been clear that synthetic LIBOR is a temporary bridging tool to risk-free rates, and its availability is not guaranteed beyond end-2022. During the course of 2022, the FCA has said it will seek views on retiring 1-month and 6-month synthetic sterling LIBOR at the end of 2022, and on when to retire 3-month sterling synthetic LIBOR.
Developments in bond and securitisation markets are covered by the Working Group’s Bond Market Sub-Group. It supports the active transition of legacy bonds from synthetic sterling LIBOR to SONIA, and considers any implications of non-sterling LIBOR transition in UK bond markets.
Developments in loan markets are covered by the Working Group’s Loan Enablers Task Force (LETF). It supports the active transition of legacy loans from synthetic sterling LIBOR to SONIA, and considers any implications of non-sterling LIBOR transition in UK lending markets.
Credit adjustment spreads in fallbacks for sterling cash products
Following the work undertaken by ISDA for derivative products, the Working Group published a series of consultation papers for the sterling cash market (including loans, bonds, and securitisations) to determine the methodology that could be used to calculate the credit adjustment spread for fallback language in sterling cash instruments.
With a strong consensus amongst respondents, the Working Group issued a statement recommending the historical five year median approach as the most appropriate methodology for credit adjustment spreads to be applied to SONIA, in both cessation and pre-cessation fallbacks for sterling LIBOR-linked cash products maturing beyond end 2021.
The Chair of the Working Group wrote to BISL in January 2021 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. You can read BISL's response on its dedicated LIBOR transition page.
For more background see:
To support a broad-based transition away from LIBOR, the Working Group formed a taskforce to identify various dependencies that could pose barriers to transitioning from LIBOR and potential mitigants to these, which were communicated to the relevant authorities. These letters set out the potential regulatory barriers the Working Group identified:
The Bank of England published a response to the letter to the PRA from its CEO, Sam Woods, in December 2019.
While many contracts continue to be able to successfully transition, the Working Group identified that this may be more difficult where, for example:
- contracts form part of complex transactions or arrangements
- distribution is broad and there may be additional complications with obtaining the necessary consent
- retail counterparties are involved
Contracts that genuinely have no or inappropriate alternatives and no realistic ability to be renegotiated or amended, are referred to for this purpose as ‘tough legacy’ products.
In June 2020, the Government announced its intention to bring forward legislation to amend the Benchmarks Regulation to give the FCA enhanced powers, which could help it manage and direct any wind-down of critical benchmarks, such as LIBOR. These powers became effective through the Financial Services Act 2021.
In line with the UK authorities, the Working Group encourages firms to continue to pursue the active transition of legacy sterling LIBOR contracts currently using the temporary synthetic LIBOR rates. Transitioning these contracts to permanent robust alternatives remains the best way to retain control and economic certainty over existing agreements.
In May 2020, the Working Group published a paper on the identification of tough legacy issues which may be relevant to market participants in considering their approach to contracts which cannot be dealt with through active transition.
The Working Group closed the Tough Legacy Task Force in 2020, having concluded it had met its objectives.
Infrastructure firms play a key role in the successful transition to risk-free rates. The availability and readiness of systems and infrastructure supporting the use of SONIA and other RFRs will further the adoption of non-LIBOR linked products
The Working Group’s Infrastructure Sub-Group led work engaging with infrastructure providers to discuss any issues and ensure their readiness to incorporate compounded SONIA capability in their products. Following end-2021, the Working Group closed the Infrastructure Sub-Group, having concluded it had met its objectives.
For more detail of its previous work, please see:
The Working Group’s Pension Fund, Insurance and Asset Managers Sub-Group was formed to consider potential barriers impeding the transition from LIBOR across buy-side markets. Following end-2021, the Working Group closed the Pension Fund, Insurance and Asset Managers Sub-Group having concluded it had met its objectives.
In August 2019, the Working Group welcomed the European Insurance and Occupational Pensions Authority (EIOPA) decision to add the monitoring of LIBOR transition to their 2019 priorities and recognised EIOPA’s planned review of Solvency II in 2020.
The Working Group welcomed the International Accounting Standards Board’s (IASB) decision to add the IBOR Reform and the Effects on Financial Reporting project to its Standard Setting agenda.
The Working Group extended its support to the IASB and initiated an Accounting Task Force to identify issues resulting from transition affecting financial reporting. In September 2020, the Working Group responded to the Financial Reporting Council’s invitation to comment on the endorsement and adoption of the IASB’s Phase 2 amendments in the UK. Following end-2021, the Working Group closed the Accounting Task Force, having concluded it had met its objectives.
The Working Group’s preferred sterling risk-free rate, SONIA, is an overnight rate. This has some important differences to LIBOR, which is a forward-looking term rate.
Overnight SONIA compounded in arrears is now fully embedded as a reference rate in sterling bond, loan and derivative markets. In limited areas alternatives to overnight SONIA compounded in arrears may be required, such as a forward-looking term rate, the Working Group sought feedback on the practicalities of catalysing the development and limited use of Term SONIA Reference Rates (TSRRs). The Working Group published a paper in January 2020 which noted the limited use cases within cash markets where use of a TSRR would be appropriate. In July 2021, the FICC Markets Standards Board (FMSB) published its Standard on use of TSRRs.
In May 2019, a number of benchmark administrators presented their respective work on TSRRs to the Working Group, including FTSE Russell, ICE Benchmark Administration, Refinitiv and IHS Markit. IHS Markit and FTSE Russell have since confirmed they are no longer working to publish a term SONIA rate.
Compounded in arrears SONIA
Term SONIA Reference Rates
Working Group background
The Working Group was originally set up in 2015 in response to the Financial Stability Board's recommendation 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. 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 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, and focussed on catalysing a transition to using SONIA as the primary sterling interest rate across bond, loan and derivatives markets by the end of 2021. See the Working Group’s terms of reference from 2018 to 2022.
During this period, the Working Group benefitted from strategic support and senior engagement with firms through a Senior Advisory Group. You can read its terms of reference. The Senior Advisory Group met for the final time on 1 February 2022.
Following the successful cessation of the sterling LIBOR panel at end-2021, the Working Group concluded at its January 2022 meeting that it had met its objective to “catalyse a broad-based transition to SONIA across sterling derivative, loan and bond markets”. It was however noted that there remains further work to be done to finalise the transition from LIBOR, including the continued active conversion of legacy sterling LIBOR-linked bonds and loans dependent on temporary synthetic LIBOR; and to consider any implications of non-sterling LIBOR transition in UK markets.
It was decided that the Working Group would move forwards in an amended form with new objectives, and with continued support from the Bank of England and FCA. Please see the Working Group’s updated terms of reference for more information.
You can keep up to date by following the Working Group LinkedIn page.
The membership of the Working Group includes banks and dealers, investment managers, non-financial corporates and other sterling issuers, central clearing counterparties and trade associations.
The Working Group invites further expressions of interest in participating in transition work either as members of technical Sub-Groups or Task Forces to share views on aspects of the transition.
This includes expressions of interest from professional services firms, in particular 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 and Task Forces.
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.