Minutes of the Working Group on Sterling Risk-Free Reference Rates - March 2021

The Working Group on Sterling Risk-Free Reference Rates, which is comprised of a diverse set of market participants, is working to catalyse a broad-based transition to SONIA by end-2021.
Published on 18 May 2021

Date of meeting: 30 March 2021 | Location: Virtual meeting


1 Standing Items

a - Welcome & introductions
b - Competition Law Reminder

2 Review of Progress

a - Update on Recent Announcements from the FCA and IBA
b - Publication of PRA/FCA “Dear CEO” Letter
c - Update on the Financial Services Bill

3 Derivative Market Transition

a - Update on Progress in the Linear Derivatives Market
b - SONIA Non-Linear Derivatives First
c - SONIA Futures First and Further Work on Cross-Currency Derivatives

4 Loan Market Transition

a - Trade association update on Q1 milestone
b - Updated RFRWG guides & LMA documentation

5 Active Transition and Fallbacks

a - Operationalisation of Fallbacks
b - Discussion of Active Transition Communications

6 Bond Market Transition

a - Successor Rate for Type 2 and 3 Fallbacks: Summary of Consultation Responses
b - Transition of Structured Products
c - Identification of Legacy Contracts for Active Conversion

7 Update from the Communications Sub-Group

8 Remaining Deliverables for the Working Group



1. Standing Items

1.a. Welcome and introductions

  1. The Chair welcomed attendees and thanked Working Group members for their continued engagement.

1.b. Competition Law Reminder

  1. The Working Group’s competition law counsel gave a competition law reminder. The Chair noted that the minutes of the February meeting had been approved by written procedure and subsequently published ahead of the meeting.

2. Review of Progress

2.a. Update on Recent Announcements from the FCA

3. The FCA highlighted its announcements on 5 March 2021, which set end dates for all LIBOR panels, whilst reaffirming that these panels are expected to remain representative until their specified end-dates. For GBP, EUR, JPY and CHF the panels will cease at the end of 2021, whilst the USD LIBOR panels for the most used tenors will continue until mid-2023.

4. The Financial Services Bill would grant the FCA additional powers to support the orderly wind-down of a critical benchmark. For LIBOR, the FCA noted that they intended to consult on restricting new use of USD LIBOR for regulated firms/products from the end of 2021, in line with US supervisory guidance. In addition, the FCA planned to consult in Q2 on a possible “synthetic” LIBOR rate for the most widely-used GBP and JPY settings. The FCA would also consider the case for using these new powers for some USD LIBOR settings after June 2023.

2.b Publication of PRA/FCA “Dear CEO” Letter

5. The Bank of England noted the publication of a joint PRA/FCA “Dear CEO” letter and emphasised the alignment of supervisory messaging with the Working Group’s own recommended Roadmap and timelines. Consistent with previous “Dear CEO” letters, the PRA and FCA continue to see LIBOR transition as a risk-management exercise, whilst keeping a range of more intrusive supervisory tools under review for use if needed.

6. The authorities continue to encourage all market participants to actively transition exposures ahead of the cessation of GBP panel bank Libor wherever possible.

7. The Bank and FCA noted that the Working Group did not consider continued secondary trading in GBP LIBOR linked loans, bonds and securitisations to be ‘new issuance’ for the purpose of its recommended milestones and could support active transition through firms helping clients manage down and/or convert legacy LIBOR positions.  Both authorities highlighted that either through market-making responsibilities or other activity firms should ensure clients are aware of the risks posed by LIBOR cessation, including potential liquidity impacts on LIBOR linked instruments as cessation becomes imminent.  Where firms expected to undertake trading in LIBOR linked instruments outside of what would be considered their ‘normal’ trading activity (e.g. building significant positions in legacy LIBOR linked contracts) they were encouraged to discuss it with their supervisors.

8. The FCA also commented on the need for lenders to meet their client’s liquidity needs in the short-term. Where a client was currently unable to borrow using SONIA, lenders could consider the use of a fixed rate, alternative floating rates or a short-term LIBOR linked facility that expires before the end of 2021 to ensure borrowers continued to receive the financing they needed. The “Dear CEO” letter was clear that firms should not be initiating long-dated LIBOR lending after the Working Group’s recommended end-Q1 2021 milestone.

9. The Chair welcomed the clear expectations provided by the letter, noting that it would aid firms as they discuss LIBOR transition with their clients and counterparties.

2.c. Update on the Financial Services Bill

10. The FCA relayed that the Financial Services Bill would not include an amendment to provide an explicit “safe harbour” for LIBOR transition. This did not represent a substantive decision on its merits but reflected timing constraints. Her Majesty’s Treasury (HMT) remained committed to engaging with the industry on this topic.

11. The Chair’s Office proposed that the Working Group should write a letter to HMT, to highlight the Working Group’s support for the addition of a legal “safe harbour” to complement the existing tough legacy provisions included in the Financial Services Bill. Several Working Group members expressed support for drafting to commence and it was agreed the Chair’s office would action this.

3. Derivative Market Transition

3.a. Update on Progress in the Linear Derivatives Market

12. The FCA noted good progress in the linear derivatives market. Almost all inter-dealer activity and the majority of cleared derivatives traded against SONIA in March 2021. The Working Group’s “Path to Ending New Use of GBP LIBOR-Linked Derivatives” paper clearly set out how the Working Group expected the derivatives market to evolve in the coming months.

3.b. SONIA Non-Linear Derivatives First

13. The FCA and Bank of England reported on the poll undertaken by the FCA of non-linear derivatives market participants. As publicly announced, the vast majority of market participants were supportive of endeavouring to change the interdealer quoting convention from LIBOR to SONIA in sterling non-linear derivatives markets from 11 May 2021. The intention was for non-linear GBP LIBOR volumes to continue to decrease ahead of end-Q2 2021.

14. One Working Group member expressed support for this initiative, highlighting the need to continue to build liquidity in non-linear SONIA derivatives.

15. The Secretariat noted that the Working Group’s Roadmap would be updated to reflect this development and would continue to be updated with key developments on a regular basis.

3.c. SONIA Futures First and Further Work on Cross-Currency Derivatives

16. The FCA and Bank of England agreed that progress was needed to build further liquidity in the SONIA ecosystem ahead of the Working Group’s Q2 milestone to cease all remaining new GBP LIBOR business. To this end, the authorities are engaging with a wide range of participants in the sterling futures market to shift liquidity towards SONIA, possibly around the June roll date.

17. The Bank of England highlighted the dependence on USD transition in cross currency RFR markets. Given certainty of LIBOR panel end dates and the fixing of the ISDA ’spread adjustments’ for USD, the Bank of England encouraged members to continue to work collectively, including through links with the US industry group (Alternative Reference Rates Committee), to facilitate a shift towards RFRs in cross-currency markets.

18. One Working Group member highlighted that the RFR-to-RFR cross-currency market had seen some activity, but thought this was still at an early stage with activity thought to be largely about testing technical functionality. Given the significance of USD in cross currency markets, further growth in SOFR usage would have the most significant impact in increasing RFR-to-RFR volumes.

4. Loan Market Transition

4.a. Trade association update on Q1 milestone

19. Trade associations provided an update to the Working Group on the loan market. Overall, it was thought that lenders and borrowers were well-prepared for the end of GBP LIBOR-linked lending, and that borrowers could continue to meet their financing needs after end-Q1 2021.

20. The chair of the Loan Enablers Task Force (LETF) highlighted the publication of an update to the Working Group’s “Best Practice Guide for GBP Loans”, to include a new appendix on technical and system capability guidance. The LETF hoped that the updated guide would answer the remaining questions from industry participants and provide a key source of recommended conventions and technical guidance.

4.b. Updated RFRWG guides & LMA documentation

21. The Bank of England noted that the Secretariat had also updated the Working Group’s supporting slides and worked examples originally published in September 2020, to better align with prevailing loan market conventions. The Loan Market Association (LMA) noted that these minor amendments would be reflected in updates to its own documentation which were due to be published imminently as recommended forms.

5. Active Transition and Fallbacks

5.a. Operationalisation of Fallbacks

22. The Chair noted that the fixing of the ISDA’s ‘spread adjustments’ had allowed the Working Group’s “Operational Considerations for Fallbacks in Uncleared Linear Derivatives” paper to be finalised, and was due for publication in the coming weeks.

5.b. Discussion of Active Transition Communications

23. The Chair acknowledged previous questions from members at the February meeting, concerning where market participants should look to actively transition legacy GBP LIBOR exposures, rather than relying on fallbacks.

24. The FCA emphasised that firms should not look to place long-term reliance on any synthetic GBP LIBOR rate, which would only provide a temporary solution for “tough legacy” contracts. The FCA highlighted the important progress made in inserting robust fallbacks into contracts, particularly in the derivatives market via the ISDA Protocol. However, with these fallbacks set to take effect at year-end 2021, this could impose an operational burden on firms. Where possible, firms should engage proactively to begin discussions around transition as soon as practicable. The FCA also referred Working Group members to its conduct Q&A, which outlined the FCA’s conduct expectations, particularly given the current basis between GBP LIBOR and SONIA swaps.

25. The Co-Chair of the Communications Sub-Group highlighted its plans to publish a short document and use the Working Group’s LinkedIn page to raise awareness of the issues that firms should consider in decision-making regarding active transition. It was agreed that this publication should be combined with the “Operational Considerations for Fallbacks in Uncleared Linear Derivatives” paper.

26. One Working Group member noted that market participants may wish to consider the potential benefits of active transition to SONIA, rather than via the adoption and execution of contractual fallbacks, whilst also emphasising that end-users should not be pressured or disadvantaged by LIBOR transition when relying on fallbacks.

6. Bond Market Transition

6.a. Successor Rate for Type 2 and 3 Fallbacks: Summary of Consultation Responses

27. The Bank of England summarised the feedback received in response to the Working Group’s “Consultation on successor rate to GBP LIBOR in legacy bonds referencing GBP LIBOR”. There were 24 responses to the consultation, all of which supported a recommendation of a successor rate by the Working Group, 22 respondents favoured overnight SONIA, compounded in arrears as the relevant successor rate, while 2 respondents instead favoured a Term SONIA Reference rate.

28. The Chair of the Bond Market Sub-Group thanked Working Group members for their input and noted that a recommendation of overnight SONIA, compounded in arrears would be consistent with the market standard for new issuances of Floating Rate Notes. It was also recognised that any recommendation would only cover a minority of legacy GBP LIBOR bonds, namely those with “Type 2 or 3 fallbacks” as referenced in the consultation on successor rate to GBP LIBOR in legacy bonds referencing GBP LIBOR paper.

29. The Chair noted a significant consensus in favour of making a recommendation to the market, to be considered in the first instance by the Bond Market Sub-Group, and should be shared with the Working Group in due course.

6.b. Transition of Structured Products

30. Working with the UK Structured Products Association, the Bond Market Sub-Group had developed a paper on the transition of structured notes away from GBP LIBOR. The paper aimed to offer practical steps for market participants who were seeking to transition notes with a derivative component. For new business, the paper highlighted overnight SONIA, compounded in arrears as a potentially suitable alternative rate and highlighted considerations around calculation conventions. For the transition of legacy products, the paper emphasised the need for engagement between product manufacturers and distributors, especially where consent solicitation may be necessary to transition a product.

6.c. Identification of Legacy Contracts for Active Conversion

31. The Chair of the Bond Market Sub-Group presented some analysis of the stock of outstanding bonds, which highlighted that around 500 GBP LIBOR-linked bonds were likely to remain outstanding beyond the end of 2021. 50 GBP LIBOR-linked bonds had so far been converted via consent solicitation, though these accounted for 30% of the total value outstanding. This could lead to a significant population of GBP LIBOR-linked bonds remaining outstanding beyond the end of 2021.

7. Update from the Communications Sub-Group

32. The Co-Chair of the Communications Sub-Group highlighted the continuing presence of the Working Group on LinkedIn, particularly in promoting educational resources for end-users. The Sub-Group is also exploring whether further engagement with the press could generate additional momentum around the transition process.

33. UK Finance had circulated an introductory guide to LIBOR transition for smaller end-users (e.g. SMEs) to around 60 organizations, with a majority responding positively. UK Finance would look to follow up on requests for further materials and build on this engagement through tailored press releases.

8. Remaining Deliverables for the Working Group

34. The Chair thanked Working Group members for the significant activity undertaken in Q1 2021, after which no new cash products or linear derivatives expiring after the end of 2021 should reference GBP LIBOR. Having reached this significant milestone, the Chair’s Office would be reaching out to Sub-Group and Task Force chairs to identify remaining priorities and work for the remainder of 2021. The Chair encouraged all Working Group members to put forward any areas where further work was needed.

9. AOB

35. ISDA confirmed that the triggers and fallbacks set out in its IBOR Fallbacks Supplement would be substantively incorporated into its soon to be published 2021 ISDA Interest Rate Derivatives Definitions, along with the modular conventions it is publishing as a supplement to the 2006 ISDA Definitions.


Private sector attendees

Tushar Morzaria - Barclays (Chair) 

Paul Mansour - Barclays (Chair’s Office)

Andreas Giannopoulos - Barclays (Chair’s Office)

Helen Robinson Barclays - (Chair’s Office)

Steven Swann - Aberdeen Standard

Shaun Kennedy - Associated British Ports

Sarah Boyce - Association of Corporate Treasurers

Alexandre Papadacci - AXA

Katherine Ashdown - Bank of America

Snigdha Singh - Bank of America

Jonathan Brown - Barclays

Ryan O’Keeffe - Blackrock

Alex Nourry - Clifford Chance (Competition Law Counsel)

Zsolt Szollosi - Credit Suisse

Martial Collet-Billon - Deutsche Bank

Michael Barron - Deutsche Bank

Simon Goodwin - Deutsche Bank

Axel van Nederveen - EBRD

Chirag Dave - Goldman Sachs

Philippe Henry - HSBC

Matthew Horton - ICE Futures Europe

Paul Richards - ICMA

Robert Gall - Insight Investment

Galina Dimitrova - Investment Association

Rick Sandilands - ISDA

Kari Hallgrimsson - JP Morgan

Guy Whitby-Smith - Legal & General Investment Management

Ian Fox - Lloyds Banking Group

Clare Dawson - Loan Market Association

Philip Whitehurst - LCH

Siobhan Clarke - M&G

Katarzyna Abendan - M&G

Tom Dyson - Nationwide

Bob Goodfellow - NatWest Markets

Phil Lloyd - NatWest Markets

Jamieson Thrower - NatWest Markets

Donal Quaid - NatWest Markets

Frances Hinden - Shell

Marcin Perzanowski - Simmons and Simmons - Guest (item 6b only)

Penny Miller - Simmons and Simmons - Guest (item 6b only)

Hannah Faith - UBS

Daniel Cichocki - UK Finance

Stephen Pegge - UK Finance

Official sector attendees

Alastair Hughes - Bank of England

Arif Merali - Bank of England

Tom Horn - Bank of England

Nicole Stirk - Bank of England

Peter Balint - Bank of England

Jugvinder Singh - Bank of England

Raza Rehman - Bank of England

Stefania Spiga - Bank of England

Leman Menguturk - Bank of England

Justine Reynolds - Bank of England

Edwin Schooling Latter - Financial Conduct Authority

Anne-Laure Condat - Financial Conduct Authority

Toby Williams - Financial Conduct Authority

John Wadsworth - Financial Conduct Authority

Will Davies - Financial Conduct Authority