Understanding The Impact Of The Transition From LIBOR

In July 2017, the UK Financial Conduct Authority (FCA) reported that the London Interbank Offered Rate (LIBOR), will be phased out as the interest rate index used in calculating floating or adjustable rates for loans, bonds, derivatives and other financial contracts by the end of 2021. LIBOR underpins approximately $300 trillion in financial products and is one of the most significant reference rates used by financial market participants.

It has been recommended by a separate working group, the Sterling Risk-Free Reference Rates Group ("Sterling RFR Group"), that GBP LIBOR should be replaced by the Sterling Overnight Index Average, SONIA. The confirmation of this replacement on 29 November by the FCA¹ further underlines the importance of understanding the potential impacts, and practical considerations, of the change in what has been such an important reference rate of modern times. A key near-term priority for the Sterling RFR Group will be to make