FCA to require publication of 1- and 6-month synthetic sterling LIBOR until end-March 2023
The UK Financial Conduct Authority (FCA) announced today that publication of 1- and 6-month synthetic sterling LIBOR will be required until end-March 2023, after which these settings will permanently cease.
The regulator previously required ICE Benchmark Administration (IBA), the administrator of LIBOR, to continue publication of the 1-, 3- and 6-month sterling and yen LIBOR settings for an additional year after end-2021, using a synthetic methodology. This was to help mitigate the risk of widespread disruption to legacy LIBOR contracts which had not transitioned by end-2021, when the sterling and yen LIBOR panels ended.
The FCA consulted in June 2022 on winding down 1- and 6-month synthetic sterling LIBOR at end-March 2023. The regulator recognised that market participants would value having a period of notice before the cessation of synthetic sterling LIBOR and that it would take a certain amount of time to announce the outcome of the consultation.
In line with the consultation, the FCA has decided to require continued publication of the 1- and 6-month synthetic sterling LIBOR settings for a further 3 months after the end of 2022, until 31 March 2023. The majority of respondents to our consultation agreed that the 1- and 6-month synthetic sterling LIBOR settings could cease in an orderly fashion at end-March 2023, or were neutral. Some responses noted that remaining exposure to these settings is low, and some said that having a confirmed cessation date could help support remaining transition efforts.
The regulator explains that it has no intention to use its powers to compel IBA to continue to publish the 1- and 6-month synthetic sterling LIBOR settings beyond this, and therefore these settings will permanently cease immediately after final publication on 31 March 2023.
Market participants need to ensure they are prepared for the permanent cessation of 1- and 6-month synthetic sterling LIBOR on 31 March 2023.
Issuers and holders of outstanding bonds referencing sterling LIBOR need to agree to convert these bonds to fair alternative rates, if they don’t have robust fallbacks in place. Lenders and borrowers will also need to agree appropriate arrangements for any outstanding loans referencing sterling LIBOR.
For synthetic yen LIBOR, market participants should be prepared for publication to cease permanently at end-2022.
There was support for continuing the 3-month synthetic sterling LIBOR setting for a limited period beyond end-March 2023. While there was some variation in views, a significant number of respondents argued for giving advance notice that the 3-month setting would end after that limited period of continued publication. Those market participants who still have contracts referencing 3-month synthetic sterling LIBOR should be preparing for its cessation in due course.
The FCA is considering the appropriate date for such cessation in light of the feedback received, and will provide further information.