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FCA publishes consultation paper on synthetic US dollar LIBOR and feedback to CP22/11


Introduction

On 23 November 2022, the FCA published Consultation Paper 22/11 ‘Consultation on ‘synthetic US dollar LIBOR and feedback to CP22/11’ (CP22/11).

In June 2022, the FCA consulted on ceasing ‘synthetic’ sterling LIBOR. The FCA also sought information on US dollar LIBOR exposures in order to help the FCA assess whether to require continued publication of US dollar LIBOR on a synthetic basis for a limited period after the end of the US dollar LIBOR panel at end-June 2023. In light of the feedback received to the FCA’s June consultation, the FCA has published CP22/11.

Proposals within CP22/21

In CP22/21, the FCA is proposing to use their powers to require publication of the 1-, 3- and 6- month US dollar LIBOR settings on a synthetic basis until end-September 2024, as well as on the appropriate methodology for constructing such synthetic US dollar LIBOR settings, and what use of them would be permitted.

The effect of these announcements and proposals is that the final LIBOR publication would be end-September 2024:

  • The 3 synthetic yen LIBOR settings will cease at end-2022.
  • The 1- and 6-month synthetic sterling LIBOR settings will cease at end-March 2023.
  • The overnight and 12-month US dollar LIBOR settings will cease at end-June 2023.
  • The 3-month synthetic sterling LIBOR setting will cease at end-March 2024.
  • The 1-, 3- and 6-month synthetic US dollar LIBOR settings would cease at end-September 2024 (proposed).

The FCA also seeks views on proposals to:

  • Use CME term SODR plus the relevant ISDA fixed spread adjustment as the methodology for a synthetic US dollar LIBOR.
  • Permit all legacy contracts other than cleared derivatives to use a synthetic US dollar LIBOR.

Going forward

The deadline for comments on CP22/21 is 6 January 2023. TheFCA expects to announce their final decision in late Q1/early Q2 2023.

The FCA also reminds firms that the synthetic yen LIBOR settings will cease at end-2022, and market participants using these rates must take the necessary action to prepare for this.



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