FCA: Further consultation on LIBOR cut

We propose to require LIBOR’s administrator, the IBA, to continue publishing 1-, 3-, and 6-month US dollar LIBOR settings using a non-representative “synthetic” methodology until the end of September 2024. After that, publication would cease permanently. For sterling LIBOR, we intend to continue to require the IBA to publish a quarterly setting of synthetic sterling LIBOR until the end of March 2024, after which it will cease permanently.

The effect of these announcements and proposals is that the final publication of LIBOR would be at the end of September 2024:

  • LIBOR settings of 3 synthetic yen cease at the end of 2022
  • 1 and 6 month synthetic LIBOR adjustments cease at the end of March 2023.
  • The US dollar overnight and 12-month LIBOR settings will end at the end of June 2023.
  • three-month synthetic LIBOR sterling will expire at the end of March 2024.
  • The 1-, 3- and 6-month US dollar LIBOR synthetic adjustments will end at the end of September 2024 (proposed)

LIBOR in US dollars

We previously announced that US dollar LIBOR would cease to be produced on a representative, panel-bank basis immediately after it was published on 30 June 2023. We noted in our announcements that we would consider the exercise of powers under the Benchmark Regulation (BMR). to require continued publication on a “synthetic” basis for certain US dollar LIBOR settings.

In light of the feedback received during our June consultation, we have published a further consultation on our proposals to use those powers to require LIBOR’s administrator, ICE Benchmark Administration Limited (IBA), to publish 1-, 3- and 6-month LIBOR Benchmarks -a in US dollars according to the synthetic methodology for the interim period until the end of September 2024.

Although we believe that synthetic LIBOR is a fair and reasonable approximation of what LIBOR could have been, it will no longer be representative for BMR purposes. Not for use in new contracts. It is only intended for use in certain legacy contracts.

Many US dollar LIBOR contracts have provisions that trigger their conversion to alternative rates (e.g. risk-free rates) when publication on a representative basis ends after June 30, 2023. Others, notably many US law contracts, are covered by statutory provisions that will enable their conversion to the appropriate alternative rates at this time. However, respondents to our consultation highlighted a significant number of contracts in the cash markets, particularly non-US cash markets, that would benefit from a US dollar LIBOR publication period on a synthetic basis.

Our consultation also seeks views on our proposals for:

  • Use the CME term SOFR plus the relevant ISDA fixed spread adjustment as the methodology for the US dollar synthetic LIBOR.
  • Allow all legacy contracts other than non-cleared derivatives to use US dollar synthetic LIBOR.

This consultation will remain open until 6 January 2023 and we expect to announce our final decision in late Q1/early Q2 2023.

Any synthetic LIBOR adjustments are only a bridge to appropriate alternative risk-free rates, not a permanent solution. As such, market participants should continue to prioritize active transition and focus on converting their legacy contracts to risk-free rates as soon as possible.

For US dollar overnight and 12-month LIBOR settings, market participants are reminded to be prepared for the permanent end of publication at the end of June 2023.

Sterling LIBOR

In line with the feedback received during our June consultation, on 29 September 2022 we announced that we would require LIBOR’s administrator, the IBA, to continue to publish 1- and 6-month synthetic LIBOR settings in sterling for the next 3 months until at the end of March 2023, after which it will cease permanently.

A significant number of respondents were in favor of giving advance notice that the three-month sterling synthetic LIBOR setting would end after a limited period of continued publication after the end of March 2023.

In line with this feedback, we intend to continue to require the IBA to publish a three-month synthetic LIBOR setting in sterling until the end of March 2024, after which it will cease permanently. Those market participants who still have contracts relating to 3-month sterling LIBOR should ensure that they are prepared for the cessation of publication at that time.

Yen LIBOR

For synthetic yen LIBOR, we continue to remind market participants to be prepared for the permanent end of publication at the end of 2022.

Source: FCA



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