LIBOR Newsflash: UK FCA Announcement on LIBOR
The FCA has announced the dates that panel bank submissions for LIBOR settings will cease, after which representative LIBOR rates will no longer be available.
The Financial Conduct Authority (FCA) has released an important statement on the future cessation and loss of representativeness of LIBOR.
The statement constitutes an index cessation event under ISDA's IBOR Fallbacks Supplement and Protocol, fixing and providing certainty on the fallback spread adjustment for all 35x LIBOR settings.
Permanent Cessation
The announcement confirms the permanent cessation (ie without synthetic continuation) of the following 26x LIBOR settings:
31 December 2021: all 7 euro LIBOR settings, all 7 Swiss franc LIBOR settings, the Spot Next, 1-week, 2-month and 12-month Japanese yen LIBOR settings, the overnight, 1-week, 2-month, and 12-month sterling LIBOR settings, and the 1-week and 2 month US dollar LIBOR settings will cease immediately after 31 December 2021.
30 June 2023: overnight and 12-month US dollar LIBOR settings will cease immediately after 30 June 2023.
Synthetic LIBOR - Unrepresentative
The FCA will consult on whether to continue the following settings on a synthetic basis:
1-month, 3-month and 6-month sterling LIBOR for a further period after end-2021.
1-month, 3-month and 6-month Japanese yen LIBOR after end-2021 for one additional year. The FCA said that it does not propose to compel IBA to continue to publish any JPY LIBOR settings after end-2022, so these will permanently cease after final publication on 30 December 2022.
It will continue to consider the case for 1-month, 3-month and 6-month synthetic USD LIBOR after the end of June 2023, taking into account views and evidence from US authorities and other stakeholders.
The FCA also today published Statements of Policy in relation to its proposed new powers under the Benchmarks Regulation (BMR) (subject to the enactment of the Financial Services Bill by Parliament). These Statements of Policy set out the methodology the FCA would propose to require IBA to use in continuing the publication of any LIBOR settings on a synthetic basis (broadly a forward looking term rate of the relevant RFR plus a fixed adjustment spread calculated on the same basis as the ISDA fallbacks methodology).
However, the FCA notes that, while it considers this methodology to be "a fair approximation of what panel bank LIBOR would have been", synthetic LIBOR would no longer be representative of the underlying market and economic reality it is intended to measure for purposes of the BMR and representativeness will not be restored.
The FCA reminded firms that synthetic LIBOR is designed for legacy contracts and that new use by UK regulated firms in regulated financial instruments would be prohibited under the BMR.
