On 21 December 2018, the Bank of England’s Working Group on Sterling Risk-Free Reference Rates published a paper on new and legacy loan transactions referencing Sterling LIBOR (the Paper). The Paper is intended to raise market awareness regarding potential considerations for loan market participants in relation to new and legacy loan agreements which reference LIBOR, to help market participants increase their level of preparedness and forward planning.

A number of possible issues are raised by the working group if LIBOR is replaced. The Paper takes the stance that the most effective way of avoiding risks related to Libor discontinuation is to transition to alternative benchmarks, in particular SONIA. The Paper sets out a number of steps in response to its concerns, to mitigate the identified considerations for new transactions.