The Bank of England has stated that it complies with international best practice for financial benchmarks and will apply these standards in its administration of the sterling overnight index average (SONIA). The bank issued a statement showing that it complies with the International Organization of Securities Commissions (IOSCO) principles for financial benchmarks, a statement that has been independently assured by Ernst and Young.

In April 2017, the Working Group on Sterling Risk-Free Reference Rates recommended SONIA as the preferred risk-free rate for sterling markets. Work is now underway to move away from sterling Libor to SONIA. At its June 2018 meeting the Financial Policy Committee judged that “continued reliance of financial markets on Libor poses a risk to financial stability that can be reduced only through a transition to alternative rates”.

Compliance statement is important step

According to the Bank of England, its IOSCO compliance statement is an important part of the transition process because it provides transparency over the administration of SONIA to the expanding set of SONIA users.

The bank's statement said: “Today’s publication is an important step in demonstrating the Bank’s commitment to meeting international best practice in its administration of SONIA. In complying with the principles, the Bank is meeting best practice in governance, quality of benchmark determinations, quality of methodology and accountability.”

What are the IOSCO Principles?

The IOSCO Principles were published in 2013 and have since been endorsed by the Financial Stability Board, the G20’s body for international coordination of financial sector policies, as part of their reform work following benchmark manipulation scandals. The principles have since been adopted widely by benchmark administrators.