
Local authorities should be wary of reserving contracts for local suppliers, as recommended by Procurement Policy Note (PPN) 11/20. Other contracting authorities may want to maximise their use of this
The FCA’s intention here appears to be to remind all market participants that, Covid-19 aside, work continues to be undertaken in the background for LIBOR transition and so all market participants should retain some focus on their preparations for the same.
Recap
The London Interbank Offered Rate (LIBOR) is a measure of the average rate at which banks are willing to borrow wholesale, unsecured funds. It is now widely accepted that this rate is unreliable. Not only is there potential for rate manipulation but the rate has also become less reliable as the number of unsecured, interbank lending transactions (on which the rate is based) has fallen.
To address the pitfalls in LIBOR, the FCA obtained a voluntary agreement from the LIBOR panel banks in 2017 to continue to submit LIBOR until the end of 2021, but not beyond. All banks and other market participants need to have removed their dependencies on LIBOR by this date if they are to avoid disruption when publication of LIBOR comes to an end.
At the time of writing, it appears that different countries will use their own local reference rates as an alternative to LIBOR. In the UK, the frontrunner for a local reference rate (as championed by the FCA and the Bank of England (BOE)) is the Sterling Overnight Indexed Average (SONIA). Whilst other rate options remain available and will likely be used alongside SONIA in a post-LIBOR world, the UK’s Working Group on Sterling Risk Free Rates has focussed its attention on SONIA from as early as November 2017.
SONIA
SONIA is based on actual transactions and reflects the average of the interest rates that banks pay to borrow sterling overnight from other financial institutions as opposed to rates for a longer-term. Whilst LIBOR is forward-looking and relies upon ‘expert’ judgment calls to be made, SONIA is backward-looking. It is published by the BOE and is already used to value around £30 trillion of assets each year.
The primary challenge with SONIA is that because it is an overnight rate there is, as yet, no consensus for how it can be successfully applied as a replacement for forward-looking LIBOR term rates.
In order to address this challenge, the BOE is (as of March 2020) seeking views from market participants on:
While we wait to see the market response to the BOE’s proposals, we can see that SONIA is already being applied to an expanding array of products and in new areas of the financial services market. By way of example, SONIA will soon be the predominant rate for sterling interest rate swaps after the FCA and the BOE encouraged a switch from LIBOR to SONIA from 2 March 2020 onwards. We are also aware of the completion of what we understand to be the housing sector’s first loan facility for Riverside using the SONIA interest benchmark. The march, it seems, goes on.
Preparations
Notwithstanding the current climate, it remains important for all our borrower clients, where time, resource and energies can be spared, to take the following steps:
In any event, all of our clients participating in the UK financial services market should; where time, resource and energies can be spared:
For further information or to discuss any of these issues, please contact Michael Nutman.
Local authorities should be wary of reserving contracts for local suppliers, as recommended by Procurement Policy Note (PPN) 11/20. Other contracting authorities may want to maximise their use of this
Most housing practitioners have perhaps been waiting for this news since the latest lockdown was announced by the Prime Minister on 4 January 2021.
Climate change and biodiversity is an area where significantly faster changes are needed on a global and local basis.
Chris Lloyd Smith, Adrian Leonard and Lisa Whitehouse discuss the planning opportunities available to owners of businesses and how to prepare for unforeseen events.
In their 3rd podcast of the series, Chris Lloyd-Smith and Maria Ramon discuss a number of problems with and difficulties that can arise in mediation and the mechanisms they use to overcome them.
Our previous round-up began by sharing the news that two vaccines had shown very promising test results. Here we are, not even a month later, and the first vaccines have already been administered!
The Covid-19 crisis has demonstrated that there is great resilience and innovation in the housing sector across Greater Manchester, it has also brought shortfalls and other priorities sharply into foc
For part 5 in this series of short podcasts, Chris Lloyd-Smith interviews associate Kadie Bennett on how she has been coping during these unprecedented times.
The first report of Donna Ockenden and her team into the review of maternity services at The Shrewsbury and Telford Hospital NHS Trust has been published today.
The Family Solutions Group (FSG) recommends a shift away from adversarial family proceedings, to a child-centred, holistic approach to family separation.
To receive invitations to our events, as well as information and articles on legal issues and sector developments that are of interest to you, please sign up to Newsroom.