UK LIBOR task force publishes recommendations on SONIA conventions for the pound sterling lending market


The UK’s UK Pound Risk-Free Benchmark Interest Rate Working Group has published a set of non-binding recommendations on conventions market participants may wish to adopt to support their use of the Sterling Overnight Index Average as a replacement for the British Pound Sterling Overnight Index Average. Bilateral and syndicated sterling LIBOR. loan facilities. The recommendations are:

  1. Implementation by players in the SONIA loan market through a methodology composed of arrears in place of sterling LIBOR;
  2. Using a “five-day bank review without observation lag” approach, to ensure that sufficient time is available to calculate, notify and collect interest payments based on compound arrears rates (although the retrospective with an observation lag is also a viable alternative for lenders able to offer this option);
  3. Application of a floor interest rate to each daily interest rate before compounding; and
  4. Payment of accrued interest upon early repayment of principal.

The recommendations aim to accelerate the phase-out of LIBOR-referenced financial products, in line with the task force’s goal of having market participants able to offer non-LIBOR lending products by the end. of the third quarter of 2020. Along with the recommendations, the working group has also released accompanying slides providing more color on the recommendations, examples of relevant calculations and the results of the working group’s survey on composition conventions. risk free rates for the pound sterling lending market.

Check out the Bank of England’s LIBOR updates for September 2020.

Consult the recommendations of the SONIA loan market conventions working group.

View Working Group Support Slides.

See the summary of the results of the Working Group survey.


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