Sonia will replace Libor, a benchmark rate that has been tainted by scandal in recent years.

Reforms to a widely-used inter-bank interest rate that helps dictate borrowing costs and savings rates will take effect next April, bringing down the curtain on the previous LIBOR system that has been hit by scandal in recent years, the Bank of England has announced.  

The UK’s central bank will beef up Sonia, a rival index measuring interest rates administered by the bank, from 24 April 2018, replacing the London Interbank Offered Rate, which banks’ traders have sought to manipulate to their own advantage. The scandal has seen a number of banks punished with fines, prompting calls for an overhaul to the current system.

The Sterling Overnight Index Average will calculate the average rate of all overnight loans valued at more than £25 million ($33 million) reported to the Bank of England, the BoE said yesterday. A replacement to LIBOR has been flagged for some time.

An interest rate benchmark is crucial to markets for debt instruments, credit and derivatives markets, among others, as banks and their clients require an indication of a risk-free market rate on which to peg their transactions. It also helps assess the current state of the world’s banking system and to forecast future central bank interest rates. Ultimately, borrowing and savings rates affecting millions of individuals are influenced by the benchmark.

The Bank of England will bolster Sonia to include a larger number of transactions, including overnight unsecured transactions negotiated bilaterally between banks, and those arranged by brokers. In doing so, the bank will take on the administration of Sonia, including its calculation and publication, which is presently handled by the Wholesale Markets Brokers’ Association. 

Sonia will be published at 9:00am (GMT) on the following business day that to which the rate pertains.