Minutes of the Working Group on Sterling Risk-Free Reference Rates - May 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 28 June 2021

Date of meeting: 11 May 2021 | Location: Virtual meeting


1 Standing Items
a - Welcome & introductions
b - Competition law reminder
c - Minutes from the March RFRWG meeting
d – Roadmap updates

2 Review of Progress
a - RFRWG publications
b - Update from the FCA

3 Bond Market Transition
a - Market update – issuance and legacy conversion since end-Q1
b - Proposed successor rate recommendation

4 Loan Market Transition
a - Sub-Group and Task Force structure
b - Legacy market progress update and forward planning
c - Market update – new issuance since the end-Q1 milestone

5 Derivative Market Transition
a - Market update – progress in linear derivatives markets post-Q1
b - SONIA first for non-linear derivatives
c - SONIA first for exchange traded derivatives and further work on cross-currency derivatives

6 Discussion on remaining deliverables for the Working Group



1. Standing Items

1.a. Welcome & introductions

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

1.b. Competition Law Reminder

2. The Working Group’s competition law counsel gave a competition law reminder.

1.c. Minutes from the March RFRWG meeting

3. The Chair requested any comments on the minutes of the March 2021 meeting be sent to the RFR Secretariat ahead of publication.

1.d. Roadmap updates

4. The Chair noted that a number of factual updates have been made to the roadmap and requested comments to be sent to the RFR Secretariat ahead of publication.

2. Review of Progress

2.a. RFRWG publications

5. The Working Group had produced a number of outputs since its March meeting: a paper supporting transition from LIBOR in sterling structured products, a statement setting out a range of considerations to help market participants across the GBP bond, loan and derivatives markets assess and prioritise active transition, a paper on operational considerations for fallbacks in non-cleared derivatives and a letter to the Economic Secretary to the Treasury from the Chair, on behalf of the Working Group, seeking an update on the Government’s approach to safe harbour provisions.

2.b Update from the FCA

6. The FCA noted it would consult on its proposed decision on relevant synthetic sterling and yen LIBOR tenors by the end of Q2, with a final decision to be announced near the end of Q3 or early Q4.

7. The FCA would also consult by the end of Q2 on the policy framework for determining what factors would be relevant in deciding what use of a permanently non-representative benchmark will be permitted.footnote [1] The policy will be finalised in light of this feedback and a second consultation on the proposed decision would be published in Q3, with a final decision likely to come early in Q4. Consultation on prohibiting new use of a critical benchmark that is known to be ceasing would likely follow the same timetable as for legacy use.

8. The FCA noted that the chair of the US Alternative Reference Rates Committee was invited to join the Senior Advisory Group meeting the following week.

3. Bond Market Transition

3.a. Market update – issuance and legacy conversion since end-Q1

9. Consent solicitations in GBP bonds had been proceeding with good momentum – so far there were around 56 bonds, including securitisations, converted to SONIA. This totalled around £36 billion and represented around one third of the stock of existing GBP LIBOR referencing bonds maturing after the end of 2021 by value. While this demonstrated good progress by value it only accounted for c.10% of issued GBP bonds maturing after 2021 by number, a significant population of smaller value GBP LIBOR-linked bonds may remain outstanding beyond the end of 2021 and the chair of the Bond Market Sub-Group commented on the importance of these qualifying within the FCA’s permitted ‘tough legacy’ definition.

10. In response to a question, the FCA noted that continued secondary market trading activity in LIBOR linked bonds maturing after end 2021 remained consistent with the Working Group’s recommended end-Q1 milestone, which was limited to ceasing new issuance. It was noted that supervisors would be looking for firms to be undertaking this in a way that remained supportive of transition efforts and consistent with the overall aim of reducing exposure to LIBOR where feasible.

3.b. Proposed successor rate recommendation

11. As was flagged at the previous meeting of the Working Group, the chair of the Bond Market Sub-Group presented a proposed draft of the Working Group’s recommendation on a successor rate to GBP LIBOR legacy bonds. It was explained that this recommendation was intended to provide clarity in respect of bonds with ‘type 2’ and ‘type 3’ fallbacks which envisioned the selection of a successor rate. It was estimated these accounted for approximately 30% of the total value of GBP LIBOR referencing bonds. As no opposition was raised, and in line with its terms of reference, the Working Group to proceed with making the recommendation for SONIA, compounded in arrears, to be the successor rate for the purposes of the operation of fallbacks in bond documentation that envisage the selection of a recommended successor rate.

4. Loan Market Transition

4.a. Sub-Group and Task Force structure

12. The chairs of the Cash Legacy Task Force, Loans Sub-Group and Loan Enablers Task Force (LETF) had agreed to expand the remit of the LETF to include the transition of both new and legacy GBP LIBOR referencing loans to SONIA. The Loan Sub-Group would be kept as a possible additional sounding board while the Cash Legacy Task Force will be disbanded. The Bond Market Sub-Group would continue working on legacy bond issues. The chair of the LETF would remain unchanged, and the group welcomed members of the Cash Legacy Task Force and Loans Sub-Group to express interest to join the LETF.

13. The LETF’s terms of reference would be updated to reflect these changes.

4.b. Legacy market progress update and forward planning

14. The chair of the LETF provided an update about the Task Force’s upcoming guidance on the usage of indices to support market participants. The Task Force was also looking to update the Best Practice Guide related to the cost of carry calculation for secondary trades.

15. The chair of the LETF concluded that the end-Q1 recommended milestone landed successfully. Alongside the Dear CEO letter and the FCA’s 5 March announcement of the cessation dates of panel bank LIBOR, this provided an additional motivator for the GBP loan market and leading to a further increase in customer engagement.

16. One member noted some ongoing debate related to the Credit Adjustment Spread that banks may use, specifically for multi-currency syndicate deals where the USD LIBOR leg may remain in place until mid-2023. Other members outlined that overall there was good progress between borrowers and banks, but cautioned that plans on transition could be impacted by the availability and/or capacity of external legal advisers.

17. Participants did not identify a strong case for further work to support the operation of fallbacks in cash markets at this time.

4.c. Market update – new issuance since the end-Q1 milestone

18. The Bank of England reported promising data and positive responses on the back of its regular market intelligence on new SONIA linked loan issuance.

19. The Bank of England stated that the incremental extension of credit or term to an existing LIBOR facility beyond the end of 2021 should be viewed as an increase in post cessation LIBOR risk. Extension requests should be taken as opportunities for lenders to engage and support clients to transition LIBOR linked facilities to SONIA [or robust alternatives] ahead of LIBOR GBP cessation.

20. The FCA noted developments in US dollar markets in the development of credit sensitive rates. These were less robust than RFRs, included a liquidity premium and were often dependent on data from money markets transactions, a sector which still potentially faced further change. The FCA noted that these rates had not been necessary for LIBOR transition in sterling markets. This was viewed as positive and they noted particular concern if developments led to credit sensitive rates being marketed to retail or less-sophisticated counterparties.

5. Derivative Market Transition

5.a. Market update – progress in linear derivative markets post-Q1

21. The Bank of England provided a market update for linear derivatives. Duration adjusted data for cleared swaps were around 55% SONIA vs. LIBOR in Q1 and jumped to 65% in April. These figures include FRAs, compression trades and active conversions so the share of SONIA is likely higher. The dealer to client market was estimated to be around 80% SONIA whilst volumes in the inter-dealer broker market were almost exclusively on SONIA.

5.b. SONIA first for non-linear derivatives

22. The meeting coincided with the target switch date for the SONIA first initiative in the sterling non-linear derivatives market. Early indications suggested that the market had shifted its quoting conventions to SONIA.

23. The chair of the Non-Linear Task Force (NLTF) noted that ICE Benchmark Administration had launched a GBP SONIA Spread-Adjusted ICE Swap Rate in ‘Beta’ settings building on the earlier work of the NLTF on fallbacks for the GBP LIBOR ICE Swap Rate. ISDA was due to launch a consultation imminently with the aim to publish bilateral templates to implement the fallbacks towards the end of June.

5.c. SONIA first for exchange traded derivatives and further work on cross-currency derivatives

24. The FCA, supported by the Bank of England, is developing a further ‘SONIA-first’ initiative in support of the Working Group’s recommended milestone to cease initiation of new GBP LIBOR exchange traded derivatives expiring after 2021 from the end-Q2 2021. This milestone had supervisory support from the PRA and FCA as set out in the recent ‘Dear CEO’ letter sent to supervised firms. In the survey conducted by the FCA of banks, buy-side firms, liquidity providers and exchanges, the majority were supportive of a target date for a switch to commence towards the end of Q2.

25. The FCA and the Bank of England were exploring available options to encourage greater use of RFRs in cross-currency derivatives.

6. Discussion on remaining deliverables for the Working Group

26. The Chair’s Office asked if members identified anything that is not already captured on the Working Group’s Roadmap that should be included.

27. The co-chair of the Infrastructure Sub-Group suggested that an outreach to portfolio management platforms could be useful.

28. The chair of the Accounting Task Force noted that accounting standards had already changed as desired but added that further communication with smaller corporates and small accounting firms may be beneficial.

29. The co-chair of the Communications Sub-Group noted that educational materials are already in place. The group’s focus was on awareness gaps and repackaging and repurposing existing materials in targeted outputs, such as through FAQs and social media engagement.

7. AOB

30. ISDA noted that it would soon publish the 2021 ISDA Interest Rate Derivatives Definitions and would be encouraging market participants to ensure they familiarised themselves with how the new definitions might impact their trading, operations, infrastructure and third party vendors, including with respect to the conversions which are taking place later this year for EONIA and LIBOR. ISDA confirmed that the 2021 ISDA Interest Rate Derivatives Definitions would contain substantively the same fallbacks relating to index cessation or non-representativeness as were contained in Supplement 70 to the 2006 ISDA Definitions along with the modular RFR conventions it is imminently 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)

Joseph McQuade - Barclays (Chair’s Office)

Sarah Boyce - Association of Corporate Treasurers

Katherine Ashdown - Bank of America

Snigdha Singh - Bank of America

Doug Laurie - Barclays

Jonathan Brown - Barclays

Robert Mitchelson - Blackrock

Greg Olsen - 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

David Covey - M&G

Siobhan Clarke - M&G

Katarzyna Abendan - M&G

Bob Goodfellow - NatWest Markets

Phil Lloyd - NatWest Markets

Jamieson Thrower - NatWest Markets

Donal Quaid - NatWest Markets

Frances Hinden - Shell

Hannah Falth - UBS

Daniel Cichocki - 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

Helen Boyd - Financial Conduct Authority

Anne-Laure Condat - Financial Conduct Authority

Toby Williams - Financial Conduct Authority

Will Davies - Financial Conduct Authority