Immediately prior to December 31, 2021, LIBOR was calculated for five currencies (USD, GBP, EUR, CHF and JPY) and for seven tenors in respect of each currency (Overnight/Spot Next, One Week, One Month, Two Months, Three Months, Six Months and 12 Months), resulting in the publication of 35 individual rates each applicable London business day.
LIBOR is now in the process of being wound down.
Settings which ceased after December 31, 2021
Publication of all CHF and EUR LIBOR settings, the 1 Week and 2 Months USD LIBOR settings, and the Overnight/Spot Next, 1 Week, 2 Months and 12 Months GBP and JPY LIBOR settings ceased after December 31, 20211.
Continuing USD Settings
Publication of the Overnight and the 1-, 3-, 6- and 12-Months USD LIBOR settings currently continues using panel bank contributions under the “panel bank” LIBOR methodology. IBA expects to continue to determine and publish these settings on this basis until end-June 20232, at which point panel banks will stop contributing and the Overnight and 12-Months USD LIBOR settings will cease3. In light of feedback received in respect of its June consultation, the FCA is consulting on using its powers under the UK Benchmarks Regulation (the “BMR”) to compel IBA to continue to publish the 1-, 3- and 6-month USD LIBOR settings under an unrepresentative “synthetic” methodology for a temporary period after the end of June 2023 until the end of September 2024.
Continuing GBP and JPY Settings
The FCA designated the 1-, 3- and 6-Months GBP and JPY LIBOR settings as “Article 23A benchmarks” for the purposes of the BMR with effect from January 1, 2022, and compelled IBA to publish these settings for the duration of 2022. The FCA requires IBA to calculate these settings using a changed, “synthetic” methodology. The “synthetic” methodology is not based on panel bank contributions and the resulting settings are not representative of the underlying market or economic reality they were intended to measure before designation as “Article 23A benchmarks”, including for the purposes of the BMR. Following the results of a consultation, the FCA has announced that it has decided to require IBA to continue to publish 1- and 6-Months “synthetic” GBP LIBOR settings until March 31, 2023. The FCA has also stated that it intends to require IBA to continue to publish 3-Month “synthetic” GBP LIBOR setting until the end of March 2024, after which this setting will permanently cease. The FCA has stated that the “synthetic” JPY LIBOR settings will cease at end-2022.
1 The FCA announced these cessations on March 5, 2021.
2 The FCA has confirmed that it expects these settings will continue to be published on a representative basis, using panel bank contributions under the “panel bank” LIBOR methodology, until end-June 2023.
3 The FCA also announced these cessations on March 5, 2021.
Under the BMR, new use of “Article 23A benchmarks” by UK-supervised entities in regulated financial contracts, instruments and investment fund performance measurement is prohibited. This includes the “synthetic” 1-, 3- and 6-Months GBP and JPY LIBOR settings. Legacy use of these settings in equivalent circumstances is also prohibited, unless permitted by the FCA. The FCA currently permits all legacy use of “synthetic” 1-, 3- and 6-Months GBP and JPY LIBOR by UK-supervised entities other than in “Cleared Derivatives” (whether directly or indirectly cleared) (as defined in the FCA’s BMR Article 23C notice)5.
From January 1, 2022, the FCA has prohibited the new use by UK-supervised entities in regulated financial contracts, instruments and investment fund performance measurement, of the continuing Overnight and 1-, 3-, 6- and 12-Months USD LIBOR settings, subject to certain exceptions6.
The use of LIBOR in jurisdictions outside the United Kingdom and by entities subject to the oversight of other regulatory authorities may be restricted or prohibited by law in those jurisdictions and by the requirements of such regulatory authorities.
5 The FCA announced it would permit this legacy use on November 16, 2021.
6 The FCA announced this prohibition on November 16, 2021.
“Synthetic” LIBOR under the BMR
The FCA published the modifications it has made to the BMR from January 1, 2022 as it applies to the “synthetic” 1-, 3- and 6-Months GBP and JPY LIBOR settings, having regard to the effects of its designations of these six settings as “Article 23A benchmarks” and the imposition of its changes to the methodology for these settings.
Please also see the FCA’s LIBOR transition website for further information regarding LIBOR transition.
The material and information located on this website is provided for informational purposes only and is not intended to be and should not be relied upon as legal, financial or any other form of advice regarding your use of LIBOR. Please ensure you take legal and financial advice in all relevant jurisdictions to ensure you understand the impact of the cessation or unrepresentativeness of any LIBOR settings on you and your counterparties, and to ensure you understand the implications of the exercise of the FCA’s powers under the BMR.