LIBOR transition: publication of certain USD LIBOR rates extended until 30 September 2024
On 3 April 2023, the UK’s Financial Conduct Authority (“FCA”) announced its decision to require ICE Benchmark Administration (“IBA”) to continue publishing the 1-, 3- and 6-month US dollar LIBOR settings after 30 June 2023, using an unrepresentative ‘synthetic’ methodology (“synthetic US dollar LIBOR”) (here).
The FCA intends that publication of the 1-, 3- and 6-month synthetic US dollar LIBOR settings will cease on 30 September 2024 (see here). The FCA will review this decision but expects, unless unforeseen and material events were to happen, to follow this timeline. The overnight and 12-month US dollar LIBOR settings will cease permanently after publication on 30 June 2023.
The FCA will require IBA to calculate the 1-, 3- and 6-month synthetic US dollar LIBOR settings using the relevant CME Term SOFR Reference Rate plus the respective ISDA fixed spread adjustment (see this draft notice; the FCA has indicated that it will publish the final version on 1 July 2023).
The FCA will permit supervised entities (within the meaning of the UK Benchmarks Regulation) to use the synthetic US dollar LIBOR settings in all legacy contracts except cleared derivatives (see this draft notice; the FCA has indicated that it will publish the final version on 1 July 2023).
New use of synthetic US dollar LIBOR
The FCA also states that, from 1 July 2023, all new use of synthetic US dollar LIBOR will be prohibited under the retained UK Benchmarks Regulation and that exemptions issued previously will no longer have effect.
Synthetic sterling LIBOR
While the 1- and 6-month synthetic sterling LIBOR settings ceased publication permanently on 31 March 2023, the FCA reiterates that the 3-month synthetic sterling LIBOR setting is expected to cease on 28 March 2024. Firms must continue their active transition efforts ahead of this date.
Use of synthetic LIBOR by entities that are not “supervised entities”
While the FCA’s decisions in relation to LIBOR are naturally made and published within the context of UK law and regulation and have particular application to “supervised entities” (within the meaning of the UK Benchmarks Regulation), they have broader relevance. Most obviously, the FCA’s decisions mean that synthetic US dollar LIBOR will be available for reference until 30 September 2024 and 3-month synthetic sterling LIBOR will continue to be available until 28 March 2024, rather than those LIBOR settings ceasing to be published. More broadly, the FCA decisions are likely to be taken as non-binding guidance for other market participants and indicative of the likely expectations that regulators in other jurisdictions (such as the EU and US) may have of entities that they supervise there.
Comment and next steps
The FCA has made clear again its expectation that firms take action and that firms must actively continue to transition contracts that reference US dollar LIBOR. As noted by the FCA, synthetic LIBOR is only a temporary bridge and “synthetic settings will not continue simply for the convenience of those who could have transitioned their contracts but have not done so.” This announcement should serve as another reminder to LIBOR users of the importance of transitioning from LIBOR to alternative rates, if not done so already.
Also contributed to by Jonathan Murchan
This document has been prepared by McCann FitzGerald LLP for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.