It's Beginning To Look Like a SONIA Spring

The London Inter-Bank Offered Rate (LIBOR) has three decades’ worth of roots deeply planted in financial markets, however, reforms following the global financial crisis prompted the United Kingdom (U.K.) Financial Conduct Authority (FCA) — tasked with overseeing LIBOR administration — to raise questions about the future sustainability of LIBOR. In response, regulators across the globe have identified alternative reference rates that are compliant with the standards issued by the International Organization of Securities Commission. Global regulators have indicated they expect LIBOR to be phased out by 2021 year’s end. In July 2020, the Bank of England (BoE), FCA, and the Bank of England Working Group on Sterling Risk-Free Reference Rates (the Working Group) published priorities lists and a 2020 LIBOR transition roadmap.1 The roadmap encouraged financiers to switch the convention for sterling interest rates swaps to the Sterling Overnight Index Average (SONIA) Rate on March 2, 2020, as well as to create a framework for the transition of legacy LIBOR products.2

As we move from the first quarter of 2021 into the second, more than simply the weather is transitioning. The Working Group’s Q&As and Best Practice Guide for GBP Loans sets out an updated milestone for the cessation of LIBOR in the U.K., establishing April 2021 as its official end date. The guide necessitates that all new British pound sterling (GBP) lending — including re-financing existing credit facilities — expiring after the end of 2021 be based on SONIA or other non-LIBOR alternatives.3 Note that this includes multi-currency facilities containing GBP, even though other currencies may be on a different timeline with regard to LIBOR cessation.4 This deportation of LIBOR includes LIBOR-linked products with built-in rate-switch mechanisms, furthering the goal of ensuring compatibility with the new rates from their outset. 

The BoE initiated publication of a daily SONIA Compounded Index on Aug. 3, 2020.5 This index is meant to standardize and streamline the calculation method for SONIA-based instruments and may be referenced in the documentation. The BoE expressed hope that this will reduce operational risk by facilitating reconciliation of interest amounts between counterparties, potentially allowing compounded SONIA to be utilized across products.

Taft continues to provide leadership in this transition and strives to provide legal updates on issues impacting our clients. Taft’s LIBOR transition team provides advice and thought leadership on the many challenges associated with the LIBOR transition. Please reach out to us with any questions or if we can be of assistance regarding this transition or any of your finance law needs.

[1] Priorities and roadmap for transition by end-2021 (

[2] Id.

[3] The Working Group on Sterling Risk-Free Reference Rates – GBP loan market Q&A (

[4] Id.

[5] SONIA interest rate benchmark | Bank of England

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