Alternative Reference Rates (ARR)

For over 50 years, interbank offered rates (IBORs), especially the London Interbank Offered Rate (LIBOR), have been used daily within the financial industry. IBORs are interest rates based on quotes from banks for them to borrow money from each other.

In 2012 following a series of scandals and accusations of IBOR manipulation, the UK Financial Conduct Authority (FCA) decided to phase out IBOR and move to a new benchmark – known as alternative reference rates (ARRs).

The continuing central bank global push for the transition from IBOR to ARRs is being driven by regulators around the world, such as the Federal Reserve Bank of New York and the Bank of England.

ARRs are intended to provide a robust benchmark and serve as a more credible measurement of short term risk free borrowing. They are based on collateralizations including secured overnight repo rates in USD SOFR, and CHF SARON as well as unsecured overnight depo rates GBP SONIA, JPY TONA and EUR ESTR.

Not only are regulators encouraging the use of ARRs, but they are also urging market participants to include references to these rates as standard fallback language in contracts across asset classes.

We understand that this transition can be complex, but rest assured that we are here to support you every step of the way.