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.
Date of meeting: 26 January 2022
Location: Virtual meeting
The Chair welcomed attendees to the first Working Group meeting since the cessation of the GBP LIBOR panel. The Working Group’s Competition Law Counsel reminded members of their responsibilities under competition law. The Bank of England noted that following years of preparation, four out of the five LIBOR panels (the GBP, JPY, CHF and EUR LIBOR panels) had ended on 31 December 2021 as planned. 24 out of the 35 LIBOR settings ended permanently and six of the most widely used sterling and Japanese yen settings had been successfully published on a synthetic basis, under a changed methodology, for the first time on 4 January 2022. Five US Dollar LIBOR settings remained, and would continue to be published on a panel-bank basis until end-June 2023. The Bank of England noted that overnight SONIA, compounded in arrears, was fully embedded across sterling markets, with the full range of sterling products developed and that SONIA markets had continued to function well through a challenging set of macro market conditions. The Bank of England said that the stock of legacy contracts referencing synthetic LIBOR had been significantly smaller than expected due to successful CCP conversions, widespread adherence to the ISDA Protocol and an increase in active transition in Q4, particularly in lending markets. The FCA highlighted that the Critical Benchmarks (References and Administrators’ Liability) Act received Royal Assent on 15 December 2021Opens in a new window . The FCA reiterated synthetic LIBOR was a temporary bridge to more permanent risk-free rates. Synthetic LIBOR could not be guaranteed after 2022 and firms were encouraged to continue to actively transition any outstanding sterling or Japanese yen LIBOR contracts. The FCA said it would assess the need to continue to compel the publication of synthetic 1-, 3- and 6-month sterling LIBOR settings. It noted the case for continued publication of synthetic 3-month sterling LIBOR was stronger than that for 1- and 6-month settings when the decision for continuing the three tenors was made. The FCA noted that, from 01 January 2022, new use of US dollar LIBOR was prohibited under the Benchmarks Regulation with limited exceptions. Firms were reminded to engage with their supervisors if they had questions on supervisory expectations. The FCA and Bank of England would continue to engage with other regulators and international bodies to ensure consistency with recommended milestones and supervisory guidance as far as practicable. ICE Futures Europe relayed that its conversion of short sterling and Euroswiss LIBOR futures and options, to SONIA and SARON respectively, had been successful. The SONIA products opened smoothly on 20 December after the conversion weekend. In total, ICE converted over three million short sterling futures and options contracts. Open interest in risk-free rate referencing products compared favourably to LIBOR and had continued to grow since the conversion processes. LCH noted it had run 3 successful conversion events in Q4 2021, covering swaps referencing first EONIA, then euro, Swiss franc, and Japanese yen LIBOR and finally sterling LIBOR . All conversion exercises had been completed on time and markets opened smoothly on the days following the exercises. In sterling, LCH had converted over £11tn contracts. ISDA noted that the fallbacks inserted under the ISDA IBOR Fallbacks Protocol appeared to have operated smoothly following the discontinuation of the various LIBOR rates at the beginning of 2022. ISDA saw a large number of first time and non-ISDA adherents with over 15,180 adhered to the ISDA 2020 IBOR Fallbacks Protocol, of which approximately 12,900 were not ISDA members. ISDA had released fallback documentation for additional currencies in South-East Asia, New Zealand and Scandinavia. ISDA would continue to support transition work for US dollar LIBOR. The FCA commented that transition progress to date had demonstrated that risk-free rates had been used successfully across different products and markets. Working Group members were asked to provide reflections and lessons learnt from the transition. Feedback from Working Group members: The Bank of England noted that the UK had played a leading role internationally and formed a credible and effective public-private sector partnership. The Working Group approved the publication of the updated RFRWG roadmapOpens in a new window with all recommended milestones completed. The RFR Secretariat and Chair’s office had conducted an analysis of the Working Group’s terms of reference against its outputs and progress in sterling markets. The RFR Secretariat also engaged with chairs of the Working Group’s Task Forces and Sub-Groups in an assessment of their individual terms of reference. The RFR Secretariat concluded the Working Group had met its overall objective to “catalyse a broad-based transition to SONIA by end-2021 across sterling bond, loan and derivative markets, in order to reduce the financial stability risks arising from the widespread reliance of financial markets on LIBOR”. The Working Group agreed this objective had been met. The RFR Secretariat and Task Force and Sub-Group Chairs also concluded that each group had delivered on its headline objectives. Some groups identified areas for further work, such as continued transition away from synthetic GBP LIBOR in cash markets and to consider any implications of non-sterling LIBOR transition in UK markets (for example, USD LIBOR bonds under UK law governed contracts). The RFR Secretariat proposed that all Sub-Groups and Task Forces would close, except for the Loan Enablers Task Force, Bond Market Sub-Group and Communications & Outreach Sub-Group. The existing chairs of these groups agreed to continue leading their respective groups. The Working Group would meet on an ad-hoc basis moving forward and operate under a revised terms of reference. The Bank of England and FCA would continue their involvement in the Working Group, as ex-officio members and in their role as RFR Secretariat. The RFR Secretariat noted it was also proposed that the Senior Advisory Group would wind down following their next meetingfootnote[1]. Members agreed with these proposals. Tushar Morzaria announced he would step down as Chair of the Working Group on 1 March 2022, with this and the upcoming Senior Advisory Group being his final meetings. Sarah Boyce, Association of Corporate Treasurers, would become the new Chair from that date. Stephen Pegge, UK Finance, would take over Sarah’s current role as Vice-Chair of the Working Group. Alexandre Papadacci, Vice-Chair, and Greg Olsen, Competition Law Counsel, would continue in their current roles. Members were encouraged to assess their representation on the Working Group and remaining Task Force and Sub-Groups. Membership of its Sub-Groups and Task Force remained open. The RFR Secretariat confirmed it was planning to publish a joint statement from the Working Group with the Bank of England and FCA. This was due for publication in February. Tushar Morzaria, Barclays (Chair) Andreas Giannopoulos, Barclays (Chair's Office) Helen Robinson, Barclays (Chair's Office) Paul Mansour, Barclays (Chair's Office) Alan Coutts, Aberdeen Asset Management Shaun Kennedy, Associated British Ports Sarah Boyce, Association of Corporate Treasurers Alexandre Papadacci, Axa Katherine Ashdown, Bank of America Doug Laurie, Barclays Robert Mitchelson, Blackrock Ryan O'Keefe, Blackrock Greg Olsen, Clifford Chance (Competition Law Counsel) Zsolt Szollosi, Credit Suisse Simon Goodwin, Deutsche Bank Michael Barron, Deutsche Bank Axel van Nederveen, EBRD Alan Farrell, Goldman Sachs John O'Sullivan, HSBC Investment Bank Matthew Horton, ICE Futures Europe Steven Hamilton, ICE Futures Europe Paul Richards, ICMA Robert Gall, Insight Investment Galina Dimitrova, Investment Association Rick Sandilands, ISDA Scott O’Malia, ISDA Philip Whitehurst, LCH Guy Whitby-Smith, Legal & General Investment Management Ian Fox, Lloyds Banking Group Clare Dawson, Loan Market Association David Covey, M&G Tom Dyson, Nationwide Phil Lloyd, NatWest Markets Jamieson Thrower, NatWest Markets Rachael Macpherson, Shell Paul Morris, UBS Daniel Cichocki, UK Finance Stephen Pegge, UK Finance Alastair Hughes, Bank of England Arif Merali, Bank of England Hwee Pee, Bank of England Leman Menguturk, Bank of England Raza Rehman, Bank of England Stefania Spiga, Bank of England Charlotte Buckingham, Bank of England Laura Diamond, Bank of England Edwin Schooling-Latter, FCA Helen Boyd, FCA Anne-Laure Condat, FCA Toby Williams, FCA Will Davies, FCA April Richardson, FCA In their subsequent meeting on 01 February 2022, members of the Senior Advisory Group agreed with the proposal for that group to cease meeting.Agenda
a. Welcome
b. Competition law reminder
a. Update from CCPs
b. Update from ISDA
c. Lessons LearntMinutes
Item 1 - Standing items
Item 2 - Official Sector Updates
Bank of England
Financial Conduct Authority
Item 3: Final look back on end-2021
3a. CCP update
3b. ISDA update
3c. Lessons learnt
Item 4: Future of the Working Group on Sterling Risk-Free Reference Rates
4a. End-2021 roadmap updates
4b. Update from the RFR Secretariat
4c. Next steps
Item 5: Concluding Remarks
Attendees
Private sector attendees
Official sector attendees
