FCA unveils schedule for cessation of LIBOR benchmarks
The UK Financial Conduct Authority (FCA) today published an announcement regarding the future cessation and loss of representativeness of the LIBOR benchmarks.
ICE Benchmark Administration (IBA), an authorised administrator, notified the FCA, following the completion of its recent consultation and notices of future departure received from the majority of the panel banks for each LIBOR setting, that it intends to cease providing all LIBOR settings for all currencies, subject to any rights of the FCA to compel IBA to continue publication.
The FCA has completed its assessments of the effect of panel bank departures on LIBOR’s ability to represent the underlying market, and of how IBA intends to cease providing LIBOR, as required by the UK Benchmarks Regulation (BMR).
The FCA will not require any panel banks to continue to submit to LIBOR beyond the dates from which they have notified their departure, or to require IBA to continue to publish LIBOR on the basis of panel bank submissions beyond such dates. The FCA will not use its proposed powers to compel IBA to continue to publish any of the following 26 LIBOR settings as ‘synthetic’ LIBOR.
Therefore, these 26 LIBOR settings will permanently cease, according to the following schedule:
- Publication of 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.
- ·Publication of the overnight and 12-month US dollar LIBOR settings will cease immediately after 30 June 2023.
The regulator will consult on requiring IBA to continue to publish the 3 remaining sterling LIBOR settings (1-month, 3-month and 6-month) for a further period after end-2021 on a changed methodology (also known as a ‘synthetic’) basis using the proposed new powers the government is legislating to grant us under the BMR. Using the FCA’s proposed powers in this way would be intended to protect consumers and market integrity by reducing disruption in markets where it is unlikely to be feasible to convert certain outstanding contracts that reference LIBOR to alternative reference rates.
The FCA will consult on requiring IBA also to continue to publish the 1-month, 3-month and 6-month Japanese yen LIBOR settings after end-2021 on a synthetic basis, for one additional year.
The regulator does not envisage using its proposed powers to compel IBA to continue to publish any Japanese yen LIBOR settings after end-2022, and publication of these settings will consequently cease permanently immediately after a final publication on 30 December 2022.
- Immediately after 31 December 2021, the 1-month, 3-month and 6-month Japanese yen LIBOR settings and the 1-month, 3-month and 6-month sterling LIBOR settings will no longer be representative and representativeness will not be restored.
- Immediately after 30 June 2023, the 1-month, 3-month and 6-month US dollar LIBOR settings will no longer be representative and representativeness will not be restored.
The FCA concludes by stating:
“We remind market participants that, although publication of certain LIBOR settings on a synthetic basis would be intended to assist legacy contract holders, new use of this synthetic LIBOR by UK regulated firms in regulated financial instruments would be prohibited under the BMR as amended by the Financial Services Bill currently being enacted by Parliament. Continued use by regulated firms in legacy financial instruments would also be subject to the FCA using its proposed powers to permit such use. We will consult later in 2021 on which legacy uses of synthetic LIBOR might be permitted”.