Transition from LIBOR to risk-free rates

LIBOR is an interest rate benchmark used in financial markets which is being phased out. We are supporting firms to use alternative rates by the end of 2021.

Overview

LIBOR is one of the main interest rate benchmarks used in financial markets. It determines interest rates for financial contracts around the world, worth trillions of pounds.

Since the global financial crisis in 2008-09, activity in the markets that LIBOR measures has reduced. The low volume of underlying transactions means that LIBOR is no longer sustainable and has put its future viability in doubt. Its administrator, ICE Benchmark Administration (IBA) Opens in a new window, is consulting on proposals that most LIBOR panels would cease at end-2021.

Risk-free rates (or RFRs), which are robust alternatives to LIBOR, are already available. These include the Sterling Overnight Index Average (SONIA) benchmark, which we produce.

We’ve been working closely with the Financial Conduct Authority (FCA) and market participants to support a smooth transition to these alternatives by the end of 2021.

The industry-led Working Group on Sterling Risk-Free Reference Rates (the Working Group) leads this work in sterling markets. It produces guidance and support for both financial and non-financial firms to help them with the transition. The Bank of England and the FCA participate as ex-officio members and provide administrative support to the group.

The FCA also provides guidance on the LIBOR transition Opens in a new window.

Bank of England LIBOR news, events and publications

2021

January

Alongside the Working Group and the FCA, we released a statement to accompany an update to the Working Group’s priorities 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, intended to help businesses to finish planning the steps they will need to take in the coming months.

The PRA published a consultation paper setting out its proposed approach to deep, liquid and transparent assessments and the transition of Solvency II technical information from LIBOR to SONIA in 2021. The consultation closes on 31 March 2021.

2020

December

We joined the Risk.net LIBOR Telethon on 8 December 2020. You can read the speech our Executive Director for Markets, Andrew Hauser, gave at the event: ‘Bowing out gracefully: LIBOR’s retirement draws near’.

Our Financial Policy Committee said in its Financial Stability Report that it remains essential for firms to end reliance on LIBOR, and welcomed the recent release of consultations from IBA on proposed cessation dates 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 for all LIBOR settings and from the FCA on a potential approach to use of proposed new powers 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 support an orderly wind-down of LIBOR benchmarks.

September

We hosted a webinar event ‘Is your firm prepared for LIBOR transition?’ in collaboration with the Association of Corporate Treasurers and the Confederation of British Industry. You can watch the webinar 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 and read the speech our Executive Director for Markets, Andrew Hauser, gave at the event: ‘From LIBOR to SONIA: a bridge to the future’.

We published a Bank Overground post looking at why firms need to accelerate in the transition away from LIBOR benchmarks.

Alongside the FCA, we issued a statement encouraging market makers and interdealer brokers to switch from quoting LIBOR to SONIA as the default price for sterling swaps from 27 October 2020.

August

Our Financial Policy Committee said in its Financial Stability Report that it is essential for firms to end reliance on LIBOR benchmarks before the end of 2021 because after that, those benchmarks become unavailable at short notice. Moving away from using LIBOR would give firms more certainty than relying on regulatory action enabled by proposed new powers for the FCA under the Financial Services Bill 2020.

We facilitated an online roundtable event, hosted by HM Treasury and the FCA. We asked market participants to send in their questions about HMT’s plans to enhance the FCA’s tool-kit for wind-down of critical benchmarks.

July

We hosted a webinar event ‘LIBOR: entering the endgame’. You can watch the webinar 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 and read the speech our Governor, Andrew Bailey, gave at the event.

The Prudential Regulation Authority (PRA) published a statement on the implications of benchmark reform for rules related to resolution.

May

In its interim Financial Stability Report, our Financial Policy Committee recognised a need for short-term reprioritisation, in light of the Covid-19 pandemic. However, the market volatility during March 2020 highlighted the long-standing weaknesses of LIBOR benchmarks, reinforcing the importance of completing the transition to alternative rates by the end of 2021.

The PRA published a statement on the reprioritisation of its work due to the impact of Covid-19. As part of this, some data reporting and firm meetings on LIBOR were temporarily suspended, with full supervisory engagement on LIBOR resuming from 1 June 2020.

In light of this short-term reprioritisation, we issued a revised Market Notice regarding the use of LIBOR-linked collateral, maturing after 31 December 2021, used in the Sterling Monetary Framework. From 1 April 2021, the Bank will make newly issued LIBOR-linked collateral maturing after end-2021 ineligible and progressively increase the haircuts on existing LIBOR-linked collateral it lends against.

March

Together with the FCA, we wrote to CEOs of trade associations 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 setting out how LIBOR transition could affect trade association members and called for help in raising awareness of transition amongst their networks.

February

Our Executive Director for Markets, Andrew Hauser, set out in a speech two new initiatives from the Bank aimed at further supporting risk-free rate transition in sterling markets.

This included the February Market Notice that the Bank would begin increasing haircuts on LIBOR-linked collateral it lends against from 1 October 2020.  However in light of the Covid-19 pandemic, this was postponed to begin from 1 April 2021.  

January

The PRA and FCA jointly wrote to senior managers responsible for LIBOR transition in regulated firms. It set out the progress expected from these firms 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 2020.

Together with the FCA, we issued a statement encouraging market makers and interdealer brokers to switch from LIBOR to SONIA as the default pricing approach for sterling swaps trading from 2 March, to transition progress in the derivatives market. Due to market volatility experienced during March, this date was later rescheduled for 27 October.

2019 and 2018

In December 2019, our Deputy Governor for Prudential Regulation, Sam Woods, wrote a letter to the Chair of the Working Group 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 response to issues raised by the Working Group 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, including in relation to regulatory capital, outlining actions being taken by the PRA to help facilitate a smooth transition away from LIBOR.

In September 2019, we published a short Bank Overground post looking at how prepared the markets were for the end of LIBOR.

In June 2019, our Executive Director for Markets, Andrew Hauser, set out in a speech why it makes business sense to move from LIBOR.

Also in June, we launched a consultation paper seeking feedback on our proposed approaches to managing LIBOR-linked collateral used in the Sterling Monetary Framework, and outlined the steps the Bank are taking to reduce our own LIBOR exposure.

In early June 2019, we took part in a conference on LIBOR transition to alternative risk-free reference rates. You can listen to a recording of the event and read a speech by our Deputy Governor for Markets & Banking, Dave Ramsden, who spoke about ‘calling time on LIBOR’.

In September 2018, the PRA and FCA wrote a joint letter to CEOs of the main supervised banks and insurers asking what they were doing to manage the transition from LIBOR to alternative rates. The following June, the PRA and FCA shared a summary of key themes and good practice based on the feedback the firms provided.

In May 2018 our former Governor, Mark Carney, spoke about the transition banks were making from LIBOR to the SONIA benchmark.

This page was last updated 25 January 2021

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