Interbank offered rates have been used by financial markets since the mid-1980s as a key benchmark to price and value loans, bonds, derivatives and a range of other financial products. However, with regulators looking to phase out IBORs for new risk-free rates by the end of 2021, these FAQs highlight the implications for our clients and how Aviva Investors will adapt to the changes.
1. The transition from IBOR to RFR
IBOR stands for Interbank Offered Rate; we use the term to stand for all interest rates that are at risk of cessation after the end of 2021 due to changes in benchmark regulations.
2. What is the IBOR transition?
Several high-profile legal cases on the manipulation of LIBOR in the last decade highlighted the intrinsic vulnerability of IBORs to fixing. Around £7 billion worth of fines were issued by UK and US regulators. Revised benchmark regulations are being put in place to ensure only “risk-free rates” (RFRs) will be used as benchmarks in the future. The transition is the term for financial markets and institutions that will replace IBORs with RFRs across their holdings and processes in preparation for the cessation of some IBORs at the end of 2021.
3. What will IBOR be replaced with?
A number of RFRs have been proposed to replace certain IBORs. Industry groups comprising public- and private-sector representatives across jurisdictions have identified these replacement benchmarks, and consultations are ongoing to establish new rules and transition approaches.
4. What is known about RFRs across jurisdictions?
Examples of initiatives taking place in key jurisdictions are summarised in the table below:
| Jurisdiction | Working Group | Alternative Rate | Rate Administrator | Available since |
| UK | Reformed Sterling Overnight Index Average (SONIA) | Bank of England | 23 April 2018 | |
| Euro Area | Euro Short-Term Rate (€STR) | European Central Bank | 2 October 2019 | |
| Switzerland | Swiss Average Rate Overnight (SARON) | SIX Swiss Exchange | 25 August 2009 | |
| Japan | Cross-Industry Committee on Japanese Yen Interest Rate Benchmarks | Tokyo Overnight Average Rate (TONA) | Bank of Japan | 1 November 1997 |
| USA | Secured Overnight Financing Rate (SOFR) | Federal Reserve Bank of New York | 3 April 2018 |
5. Who is driving the industry transition?
A major structural change in global financial markets is well underway, with global regulators stating that the market must remove dependencies on some IBORs before the end of 2021. Given the historical scope and breadth of IBOR usage across nearly all markets and products, regulators and industry groups are encouraging a gradual transition (including conversions of legacy contracts) rather than a point-in-time cut off.
Accomplishing this requires the input and coordination of many interested parties, including industry groups, trade organisations, financial institutions and regulators.
Industry groups
Various national industry groups have been established to define and guide the transition. These groups and their participants – including Aviva Investors, in many cases – have completed several steps, including:
- Publishing recommended product guidelines and building blocks, including recommended fallback language;
- Establishing timelines and milestones for the transition;
- Creating a forum for industry participants to provide feedback and discuss best practice.
Trade Organisations
The International Swaps and Derivatives Association (ISDA) and the Loan Market Association (LMA) have begun to define contractual standards to allow new products to incorporate and reference the new RFR benchmarks. These changes are expected to be finalised and published in the first half of 2020. For example:
- With respect to legacy derivative contracts referencing IBORs, ISDA is developing a protocol to introduce fallback terms into legacy contracts by which an IBOR-referencing contract will be converted into a RFR-referencing contract upon IBOR cessation, including the adjustment spread that will be added to the RFR-derived rate.
- For lending products, the LMA recently published an exposure draft of a reference rate selection agreement for the transition of legacy loan transactions to RFRs.
Financial institutions
Aviva Investors and many other asset managers, banks, brokerage firms and vendors in the financial services industry have launched transition programmes to implement the switch to RFR-linked products before the end of 2021. In addition, clearing houses have announced their intention to switch discounting and margining interest rates to RFRs during 2020, which is expected to serve as a catalyst towards wider acceptance and increased liquidity in RFR markets.
6. What is the timeline for the transition to RFRs?
| Date | Jurisdiction | Event |
| April 2017 | UK | SONIA is selected as the preferred GBP RFR |
| July 2017 | UK, USA, Switzerland, Euro Area, Japan | The FCA has stated that panel banks will not be compelled to submit to LIBOR after 2021 |
| April 2018 | USA | SOFR is published |
| September 2018 | Euro Area | €STR recommended as the RFR for the euro area and replacement for EONIA |
| July 2019 | Euro Area | Reformed EURIBOR is authorised under the EU Benchmark Regulation |
| Q1 2020 | UK | A SONIA term rate will be made available |
| 31 December 2021 | UK, USA, Switzerland, Euro Area, Japan | Banks will no longer be compelled to provide LIBOR submissions |
7. What is Aviva Investors’ approach?
Aviva Investors has established an RFR transition programme, responsible for working with teams in various divisions and regions to coordinate and execute a smooth and orderly transition. The programme covers all aspects of the transition, including Real Assets, Credit, Derivatives, Legal, Communications, Product, Technology and industry group engagement.
Aviva Investors participates in a number of industry groups set up to guide the IBOR transition. In addition, Aviva Investors works closely with trade associations such as the Investment Association, the LMA and ISDA that are playing an important role in facilitating the transition.
8. What is Aviva Investors currently doing to transition to RFRs?
Where appropriate, we are already transitioning client exposures from IBORs to RFRs, and actively working to transition the remaining exposures to RFRs. This will include assessing and managing clients’ IBOR exposure in a way that protects their best interests.
9. Where can I get more information?
We will update this page periodically as more details emerge and industry announcements are made. Should you wish to find out more general information on the IBOR Transition, regulators, working groups and other industry bodies have published a number of relevant papers on the topic.
For further information on how the IBOR transition may impact specific Aviva Investors products and services, please contact your sales representative or relationship manager.
A non-exhaustive list of websites is included here: