Reform of the Reference Interest Rates

On Friday, 05.03.2021 the Financial Conduct Authority (FCA) as the regulator of the London Interbank Offered Rates (LIBOR) announced that the publication of GBP-LIBOR based on the current methodology will be discontinued from 31.12.2021. As a result, GBP-LIBOR in its current form will no longer be a suitable basis for lending and derivative transactions from this date.”

We have already dealt intensively with the requirements and effects of the changeover and have developed comprehensive solutions for the smoothest possible transformation. We have written to clients whose contracts are affected in advance to inform them about the intended procedure. Please contact us if you have relevant contracts with pbb whose interest rate basis is GBP-LIBOR and you have not yet received any mail from us. Of course, we are also happy to answer any questions you may have if you are not sure whether your contracts are affected.

Official stakeholders, such as the Bank of England and the Financial Conduct Authority (FCA), and industry groups, such as the Working Group on Sterling Risk-Free Reference Rates (the Working Group), among others, have published relevant information to which we would also like to draw your attention. Relevant web links can be found below. 

Please note that the conversion of existing loans and hedging instruments to alternative risk-free rates (RFRs) should be completed by September 30, 2021 at the latest and therefore parties are expected to start the conversion process no later than March 31, 2021, but preferably as soon as possible. pbb will follow this recommendation and start the conversion process with you in the near future. We will not enter into any new products that reference LIBOR. 

Alternative Interest Rate Benchmark 

As part of the benchmark reform (IOSCO, EU BMR), the so-called "Risk Free Rates" (RFR) based on market transactions were introduced in several currencies as a clear alternative to LIBOR. 
The relevant RFR for GBP-based loans is the Sterling Overnight Index Average (SONIA), which was reformed in 2018 to be based on market transactions. This reference rate has already been able to establish itself as a widely used alternative for GBP LIBOR in the bond and derivatives markets.

The Working Group has recommended SONIA as its preferred RFR for the sterling markets, while replacing GBP LIBOR as the benchmark for a large number of financial products. pbb therefore proposes to its customers that all their credit and derivative contracts referencing GBP-LIBOR also be switched to SONIA.

Please note that - in accordance with prevailing standards - the difference between GBP-LIBOR and SONIA must be compensated by a credit spread adjustment or other adjustments to the interest rate components in order to make the transition value-neutral for both parties. Further information on this will be provided in due course.

We would like to point out that SONIA is not the only alternative interest rate for the sterling market. We would be happy to assist you if you would like alternatives.

For further questions regarding the upcoming GBP-LIBOR transformation as well as the future changeover of the USD and CHF-LIBOR interest rates, we are always available for a personal conversation - this way we create as smooth a transition as possible.

Recommended Actions

In order to prepare for the changeover process and identify necessary changes, the Working Group Sterling Risk-Free Reference Rates has published a set of recommendations. These are intended to ensure operational readiness for implementation and at the same time make clear that a considerable lead time is required for this. Therefore, the following steps in particular should be taken immediately:

  • Identification of all products with GBP-LIBOR reference.
  • Review the underlying contracts and process for changing the interest rate basis.
  • Consideration of options for alternative interest rates.
  • Examine the operational feasibility of new interest rate structures and payment procedures.
  • Early exchange with the GBP-LIBOR  product partner and coordination of a conversion procedure to avoid process uncertainties and unintended economic consequences.

The Sterling Working Group on Risk Free Rates has published a series of educational videos, providing a historical background as well as the key elements of LIBOR transition.

Please find here some information provided by the Bank of England on the transition to Sterling Risk Free Rate.


Nothing in this information constitutes legal, financial, tax, investment and/or any other type of advice, nor does the information constitute a comprehensive or complete summary or analysis of the matters discussed, or the law relating thereto. The information is made available to you on an "as is" basis and should not be regarded as a substitute for your organisation obtaining its own legal, financial, tax, investment and/or any other appropriate advice to fully understand, properly assess the risks of, and make an informed decision on behalf of your organisation in relation to the potential application of SONIA to Sterling denominated loans that may be made available to your organisation by pbb. 
This information contains links to websites of third parties, the content of which is not controlled by pbb. No liability whatsoever is assumed for the content of these third-party websites.

RFR Working Group


Andreas Wuermeling
Loan Markets

Charles Balch
REF International

Nils Rademacher