Working Group on Sterling Risk-Free Reference Rates

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.

• Active transition of legacy GBP LIBOR contracts - April 2021 (pdf 0.4 MB)
• Statement welcoming announcements on the end of LIBOR – March 2021 (pdf 0.4MB)
• The Working Group’s latest priorities and roadmap for 2020-2021 – updated January 2022 (pdf 0.5MB)
• Webinar (with ACT and CBI): Is your business prepared for LIBOR transition? – September 2020
• Key messages & actions: Is your business prepared for LIBOR transition? - September 2020 (pdf 0.5MB)
• News release: Securing a SONIA-based sterling loan market – September 2020 (pdf 0.3MB)
• Statement: continuing the pace of sterling LIBOR transition – July 2020 (pdf 0.2MB)
• Webinar: LIBOR: Entering the endgame – July 2020
• News release: Next steps for LIBOR transition in 2020: the time to act is now – January 2020
• Factsheet: Calling time on LIBOR: Why you need to act now – January 2020 (pdf 0.3MB)
• Webinar: Last Orders: Calling time on LIBOR – July 2019 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 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

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.

Regulatory barriers

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:

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.