FCA announcements on the end of LIBOR

FCA has confirmed that all LIBOR settings will either cease to be provided by any administrator or no longer be representative:

• immediately after 31 December 2021, in the case of all sterling, euro, Swiss franc and Japanese yen settings, and the 1-week and 2-month US dollar settings; and
• immediately after 30 June 2023, in the case of the remaining US dollar settings.

Based on undertakings received from the panel banks, the FCA does not expect that any LIBOR settings will become unrepresentative before the relevant dates set out above. Representative LIBOR rates will not, however, be available beyond the dates set out above. Publication of most of the LIBOR settings will cease immediately after these dates. As ISDA has confirmed separately, the ‘spread adjustments’ to be used in its IBOR fallbacks will be fixed on 5 March 2021 as a result of the FCA’s announcement, providing clarity on the future terms of the many derivative contracts which now incorporate these fallbacks.

FCA also published on 5 March 2021 statements of policy in relation to some of the proposed new Benchmarks Regulation (BMR) powers. Authorities have recognised that there are some existing LIBOR contracts which are particularly difficult to amend ahead of the LIBOR panels ceasing, often known as the ‘tough legacy’. FCA will consult in Q2 on using proposed new powers that the government is legislating to grant to it under the BMR to require continued publication on a ‘synthetic’ basis for some LIBOR settings. Any ‘synthetic’ LIBOR will no longer be representative for the purposes of the BMR and is not for use in new contracts. It is intended for use in tough legacy contracts only. The FCA will also consult in Q2 on which legacy contracts will be permitted to use any ‘synthetic’ LIBOR rate. The new statements of policy confirm FCA’s intention to propose using, as a methodology for any ‘synthetic rate’, a forward-looking term rate version of the relevant risk-free rate plus a fixed spread aligned with the spreads in ISDA’s IBOR fallbacks.