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 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.

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

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.

Letter to Bloomberg Index Services Limited (BISL)

The Chair of the Working Group wrote to BISL 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 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.

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 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, 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 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, 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 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, 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 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 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 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 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:

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 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 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.

September 2020

Adoption of new quoting conventions for interdealer swap trading

Together with the FCA, the Bank of England published a statement encouraging market makers and interdealer brokers in the sterling swaps market to adopt new quoting conventions for interdealer trading based on SONIA instead of LIBOR from 27 October 2020.

This proposal to help progress transition in the derivatives market was endorsed by the Working Group and added to its 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.

Working Group response to proposed IASB amendments

The Working Group submitted a response to the Financial Reporting Council’s invitation to comment 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 on the endorsement and adoption of the International Accounting Standards Board’s Interest Rate Benchmark Reform — Phase 2 amendment (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16) in the UK.

Letter to ICE Benchmark Administration (IBA)

The Chair of the Working Group wrote to IBA 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 to highlight areas of interest in the derivatives market and request views on the expected status of its sterling LIBOR ICE Swap Rate in the event that sterling LIBOR ceases or becomes unrepresentative, or of reduced liquidity in sterling LIBOR swaps prior to these events.

The letter seeks to better understand IBA’s plans in order for the Working Group to assess the potential impact for legacy non-linear derivatives, and to identify options to promote a smooth and orderly transition in this market.

Supporting transition away from the use of LIBOR across loans and bonds

The Working Group released a statement 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 raising awareness of its recommended milestones for loan market transition, and detailing the steps it is taking and materials available to help firms prepare.

In particular, the Working Group released a recommendation on standard market conventions for sterling loans based on SONIA compounded in arrears, to support the urgent need for loan markets to transition away from the use of LIBOR. This recommendation was based on a range of inputs, including discussions with loan infrastructure providers and other national working groups, as well as a survey of market practitioners within the Working Group and its associated sub-groups and task forces.

In addition, the Working Group hosted a webinar on 18 September 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 to raise awareness amongst the corporate sector of LIBOR transition changes taking place and actions needed to prepare for the use of alternative rates.

The Working Group and UK authorities have also stressed the importance of transitioning legacy products, where possible, to increase certainty over contractual terms and help avoid the ‘cliff edge’ risks of waiting until closer to the end of 2021. To support this the Working Group published two papers providing practical steps and considerations for the active transition of legacy cash products, and a recommendation on an approach for the credit adjustment spread methodology for use in fallbacks for sterling cash instruments:

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 15 January 2021

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