Working Group on Sterling Risk-Free Reference Rates

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:

• 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 Opens in a new window Opens in a new window Opens in a new window Opens in a new window
• priorities for 2021 and roadmap 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 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 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 Opens in a new window Opens in a new window Opens in a new window Opens in a new window and membership selection criteria 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 Opens in a new window Opens in a new window Opens in a new window Opens in a new window 

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. Opens in a new window Opens in a new window

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

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.

• Consultation on successor rate to GBP LIBOR in legacy bonds referencing GBP LIBOR – Summary of Responses (pdf)

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.

• Working Group statement welcoming announcements on the end of LIBOR’ (pdf)

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. The second paper is a Best Practice Guide (updated March 2021) 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 to include a further appendix which is intended to provide additional technical guidance and support system implementation for both lenders and borrowers.

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. 

• Path to ending new use of GBP LIBOR-linked derivatives (PDF)

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.

• Working Group roadmap and priorities – updated April 2021 (PDF)

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.

December 2020

Credit adjustment spread methods for active transition of GBP LIBOR-referencing loans

The Working Group published a paper designed to support loan market participants in considering credit adjustment spreads for active transition, which describes the key methodologies emerging in the loan market and how these compare to the approaches taken in the bond and derivatives markets.

Path for discontinuation of new sterling LIBOR-linked lending by end-Q1 2021

A key priority for the Working Group is the recommended milestone set out in its roadmap to cease issuance of sterling LIBOR-based loan products maturing beyond end-2021 by the end of Q1 2021. The Working Group has published an indicative path to discontinuation of sterling LIBOR-linked lending, intended to act as a guide for lenders, borrowers and infrastructure providers in determining intermediate steps within their firms to meet the end-Q1 2021 timeline.

Open letter to loan system vendors and treasury management system providers

The Chair of the Working Group wrote an open letter to loan system vendors and treasury management system providers, asking them to support their clients and the market in their transition away from LIBOR. System providers are asked to ensure that their software is able to accommodate the Working Group’s loan market convention recommendations ahead of end-Q1 2021.

November 2020

Supporting transition in sterling non-linear derivatives

The Working Group published a paper providing considerations on how a non-linear derivatives market could be structured using compounded in arrears SONIA. The paper covers a range of products, and is intended to support all users of non-linear derivatives to meet the Working Group’s target milestone for market participants to cease initiation of new sterling LIBOR-linked non-linear derivatives expiring after 2021 by end Q2/Q3 2021 (except for risk management of existing positions).

The paper expands on the February 2020 results of a survey of 15 dealers in sterling non-linear derivatives conducted by the Working Group to understand the preferred approach of market participants.

October 2020

Summaries of freely available independent RFR calculators and Beta Term SONIA Reference Rates

The Working Group published:

• A summary of freely available independent RFR calculators - updated in January 2021 (pdf 0.5MB)
• A summary of the key attributes of beta versions of Term SONIA Reference Rates (TSRRs) published by independent benchmark administrators - updated January 2021 (pdf 0.6MB) Opens in a new window Opens in a new window - updated January 2021.

These papers aim to keep market participants and vendors informed if they choose to adopt SONIA compounding methods or transition to TSRRs (where such transition is appropriate). In particular, they aim to help them to consider if they need to make any amendments to their systems or products.

Working Group welcomes announcement by ISDA on its IBOR Fallbacks Protocol and IBOR Fallbacks Supplement

The Working Group, the FCA and the Bank of England welcomed the announcement by ISDA that its IBOR Fallbacks Protocol and IBOR Fallbacks Supplement will be launched on Friday 23 October 2020, with an effective date of Monday 25 January 2021.

The Working Group strongly encourages widespread and early adherence to the protocol by affected financial and non-financial firms, as appropriate.

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.