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FCA: further consultation on Libor phase-out

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We propose requiring the administrator of LIBOR, 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 this the publication will stop permanently. For Sterling LIBOR, we plan to continue to require the IBA to publish 3-month synthetic Sterling LIBOR settings until the end of March 2024, after which it will permanently stop.

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

  • 3 synthetic yen LIBOR institutions to close at the end of 2022
  • 1- and 6-month synthetic Sterling LIBOR institutions close at the end of March 2023
  • Overnight and 12-month US Dollar LIBOR settings close at the end of June 2023
  • The 3-month synthetic Sterling LIBOR setting expires at the end of March 2024
  • 1-, 3-, and 6-Month US Dollar Synthetic LIBOR Setting Expires End of September 2024 (Proposed)

US dollar LIBOR

We previously announced that shortly after publication on June 30, 2023, production of a representative of the US dollar LIBOR on a panel bank basis will be discontinued. We have stated in our announcements that we will consider using the powers under the Benchmark Regulation (BMR) to require continued publication on a “synthetic” basis for certain US dollar LIBOR settings.

In light of the response to our June consultation, we have updated our proposals to use those powers to require the administrator of LIBOR, ICE Benchmark Administration Limited (IBA), to publish 1, 3 and 6 months . published on LIBOR settings in US dollars using a synthetic methodology for a preliminary period until the end of September 2024.

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While we consider synthetic LIBOR to be a fair and reasonable approximation of LIBOR, it is no longer representative of the purposes of BMR. It is not for use in new contracts. It is only intended for use in some older contracts.

Many U.S. dollar LIBOR contracts have provisions that allow them to convert to alternative rates (such as risk-free rates) when publication on a representative basis ceases after June 30, 2023. Others, especially many contracts under U.S. law, are subject to statutory provisions that would currently allow their conversion to suitable alternative rates. But respondents to our consultation stressed that a significant number of money market contracts, especially those outside the United States, would benefit from the release period of US dollar synthetic-based LIBOR.

Our consultation also draws attention to our proposals:

  • Use the CME term SOFR and the associated ISDA fixed spread adjustment as the methodology for synthetic US dollar LIBOR.
  • Allow all old contracts, except approved derivatives, to use synthetic LIBOR in US dollars.

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

Any synthetic LIBOR settings are just a bridge to appropriate alternative risk-free rates, not a permanent solution. Market participants should therefore continue to prioritize active transition and focus on converting their old contracts to risk-free rates as quickly as possible.

For the one-night and 12-month US dollar LIBOR settings, we are reminding market participants to be prepared for publication to close permanently at the end of June 2023.

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pound sterling

Based on the feedback received from our June consultation, we announced on September 29, 2022 that we would require the administrator of LIBOR, the IBA, to review the 1 and 6 month LIBOR settings for the 3 month period until the end of March publishes. continue to do so until 2023, after which they will be definitively phased out.

A significant number of respondents advocated for advance notice that the 3-month synthetic Sterling LIBOR setting would expire after a limited period of continued publication until the end of March 2023.

In line with this response, we intend to continue to require the IBA to publish the 3-month synthetic Sterling LIBOR setting until the end of March 2024, after which it will be permanently discontinued. Market participants who still have contracts referencing 3-month Sterling LIBOR should ensure they are prepared to cease publication at that time.

yen libor

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

Source: FCA

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