Legal development

FCA extends synthetic sterling LIBOR and proposes synthetic US dollar LIBOR

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    On 23 November 2022, the FCA announced that it will continue to use its powers under the UK Benchmarks Regulation to compel LIBOR's administrator, ICE Benchmark Administration (IBA) to publish three-month sterling LIBOR on a synthetic basis until the end of March 2024. The synthetic LIBOR rate will continue to be calculated as the aggregate of IBA's Term SONIA Reference Rate and the applicable spread adjustment published by Bloomberg Index Services Limited for use in ISDA fallback rates. After March 2024, the rate will be discontinued.

    On the same date, the FCA also launched a consultation on the wind-down of US dollar LIBOR, proposing that one-month, three-month and six-month US dollar LIBOR continue to be published on a synthetic basis until the end of September 2024. As with synthetic sterling LIBOR, the synthetic US dollar rates would be calculated as the aggregate of a forward-looking term rate (CME Term SOFR in this case) and the applicable ISDA fallback spread. If any synthetic US dollar rate is launched, it will not be representative and its use will be restricted to certain legacy contracts only.

    The US dollar LIBOR consultation closes 6 on January 2023 and the FCA plans to announce its decision in the first half of 2023.

    If the FCA's proposals are adopted, the discontinuation timeline for the extant LIBOR and synthetic LIBOR rates would look like this:

    rateDiscontinuation date
    1m synthetic yen LIBOR31 December 2022
    3m synthetic yen LIBOR31 December 2022
    6m synthetic yen LIBOR31 December 2022
    1m synthetic sterling LIBOR 31 March 2023
    3m synthetic sterling LIBOR31 March 2024
    6m synthetic sterling LIBOR
    31 March 2023
    Overnight US dollar LIBOR30 June 2023
    1m synthetic US dollar LIBOR30 September 2024 (proposed)
    3m synthetic US dollar LIBOR30 September 2024 (proposed)
    6m synthetic US dollar LIBOR30 September 2024 (proposed)

    12m US dollar LIBOR

    30 June 2023

    In its announcement, the FCA reiterates that synthetic LIBOR is a "bridge" to appropriate alternative risk-free rates and not a permanent solution, reminding market participants that they should prioritise active transition and convert legacy contracts to risk-free rates wherever possible.

    For more on LIBOR Transition, please see our Hub.

    Authors: Mike Logie and Kirsty McAllister-Jones

    The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
    Readers should take legal advice before applying it to specific issues or transactions.

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