LIBOR®

Background

In July 2017, the FCA announced its intention that it would no longer be necessary to persuade, or compel, banks to submit to LIBOR after December 31, 2021. Since then, the FCA and other official sector bodies have strongly encouraged market participants to transition from LIBOR to alternative rates¹.

IBA has engaged with end-users, banks, the FCA and other official sector bodies regarding the potential for continuing certain widely-used LIBOR settings after December 31, 2021. This has included surveys of banks and end-users of LIBOR to identify the LIBOR settings that are most widely-used and for which users would like to see IBA work to seek an agreement with globally active banks to support publication after year-end 2021. The focus of this engagement has been on seeking to facilitate transition by providing support for users with outstanding LIBOR-linked contracts that are impossible or impractical to modify before year-end 2021 (so-called “tough legacy” contracts).

IBA has been clear throughout its engagement that: (i) any such settings would need to be compliant with relevant regulations (in particular those regarding representativeness); (ii) there was no guarantee that any LIBOR settings would continue to be published after year-end 2021; and (iii) users of LIBOR should not rely on the continued publication of any LIBOR settings when developing transition or fallback plans.

IBA Consultation on Intended LIBOR® Cessation

Following discussions with the FCA and other official sector bodies, and after receiving communications from a majority of LIBOR panel banks that they would not be willing to continue contributing to LIBOR after certain specified dates, IBA considered that it would be unable to publish LIBOR settings on a representative basis after such dates. As a result, on December 4, 2020, IBA published a consultation on its intention to cease the publication of LIBOR.

On March 5, 2021, IBA published a feedback statement for the consultation and announced that, in the absence of sufficient panel bank support and without the intervention of the FCA to compel continued panel bank contributions to LIBOR (which the FCA confirmed it would not do), it would not be possible for IBA to publish the relevant LIBOR settings on a representative basis beyond the intended cessation dates specified for such settings in the consultation (being December 31, 2021 for all LIBOR settings except for the Overnight, 1 Month, 3 Months, 6 Months and 12 Months US dollar settings, for which the date was June 30, 2023)². As a result of IBA not having access to input data necessary to calculate LIBOR settings on a representative basis beyond the specified intended cessation dates for such settings, IBA stated that it would have to cease the publication of the relevant LIBOR settings immediately following such dates, unless the FCA exercised its anticipated new legal powers under the BMR to require IBA to continue publishing such LIBOR settings using a changed, “synthetic” methodology.

¹ Please see the FCA’s LIBOR transition website for statements, speeches and other publications regarding LIBOR transition and the FCA’s powers to compel the publication of “synthetic” LIBOR.

² The FCA has confirmed that it expects that the Overnight and the 1-, 3-, 6- and 12-Months US Dollar LIBOR settings will continue to be published on a representative basis, under the current “panel bank” LIBOR methodology, using panel bank contributions, until end-June 2023 and have advised that they will continue to consider the case for using their new legal powers to require IBA to continue the publication of the 1-, 3- and 6-Months US Dollar LIBOR settings after 30 June 2023, under a “synthetic”, unrepresentative methodology.

FCA Cessation and Unrepresentativeness Statement

On March 5, 2021, the FCA also announced that it had no intention of using its anticipated new legal powers to require IBA to continue the publication of any EUR or CHF LIBOR settings, or the Overnight/Spot Next, 1 Week, 2 Months and 12 Months LIBOR settings in any other currency, beyond the intended cessation dates specified for such settings in the consultation, and that consequently:

1. the following LIBOR settings will cease immediately after December 31, 2021:
• EUR LIBOR - all settings (Overnight, 1 Week, 1-, 2-, 3-, 6- and 12-Months);
• CHF LIBOR - all settings (Spot Next, 1 Week, 1-, 2-, 3-, 6- and 12-Months);
• JPY LIBOR - Spot Next, 1 Week, 2 Months and 12 Months;
• GBP LIBOR - Overnight, 1 Week, 2 Months and 12 Months;
• USD LIBOR - 1 Week and 2 Months settings; and
2. the Overnight and 12 Months USD LIBOR settings will cease immediately after June 30, 2023.

IBA will not be able to determine or publish the LIBOR settings specified above after December 31, 2021 (or June 30, 2023, in the case of the Overnight and 12 Months USD LIBOR settings), and users will no longer be able to receive these LIBOR settings from IBA after these dates.

Background

On April 21, 2021, the Financial Services Act 2021 passed into law and amended the BMR to provide the FCA with new and enhanced legal powers to oversee the orderly wind-down of critical benchmarks, such as LIBOR, including powers to direct a methodology change and compel the administrator to continue to publish the benchmark under the changed methodology. The UK Government has also introduced further legislation to the UK Parliament to supplement these measures by reducing the scope for uncertainty or litigation that may arise from the exercise of the powers.

The new legal powers enable the FCA, among other things, to designate a critical benchmark, such as LIBOR, in order to direct a methodology change so that such designated benchmark is published under a “synthetic”, unrepresentative methodology, in circumstances where: (i) the FCA has found that the benchmark is not representative of the market it seeks to measure or that the representativeness of the benchmark is at risk unless it considers that such representativeness can reasonably be restored and maintained and there are good reasons to do this; and (ii) such action is necessary to protect consumers and/or to ensure market integrity.

The use of such a designated benchmark by UK supervised entities in regulated contracts would be prohibited, except that the FCA has the discretion to permit certain legacy use to further its market integrity or consumer protection objectives. The FCA also has the power to prohibit new use of a critical benchmark the provision of which is to cease (such as LIBOR).

The use of LIBOR in jurisdictions outside the United Kingdom and by entities subject to the oversight of other regulatory authorities may also be restricted or prohibited by law in those jurisdictions and by the requirements of such regulatory authorities.

The UK Government has introduced further legislation to the UK Parliament to supplement the BMR amendments by providing for the impact of the exercise of the new and enhanced powers on legacy contracts.

Please also note that various jurisdictions have passed or are in the process of passing legislation to facilitate the orderly cessation of and transition from LIBOR, and many contractual arrangements under various governing laws include LIBOR “fallback” provisions. These legislative and contractual provisions may operate in a variety of circumstances, including on the cessation or unrepresentativeness of the relevant LIBOR settings.

Please note, 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 and are prepared for 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 FCA’s new powers and their exercise of those powers under the BMR.

“Synthetic” LIBOR

On June 24, 2021, the FCA launched a consultation in relation to its proposed decision to use its new powers to require IBA to continue the publication of the 1-, 3- and 6-Months GBP and JPY LIBOR settings under a changed, unrepresentative, “synthetic” methodology after year-end 2021. On September 29, 2021, the FCA announced that it would exercise its new and enhanced legal powers to compel IBA to publish the 1-, 3- and 6-Months GBP and JPY LIBOR settings under a “synthetic” methodology for the duration of 2022 (see the section entitled “FCA Announcement that it will Compel IBA to Publish 1-, 3- and 6-Month GBP and JPY “synthetic” LIBOR” above).

The FCA continues to consult and publish statements of policy in relation to its new legal powers and steps it may take under them.

Please see the FCA’s LIBOR transition website for the FCA’s latest announcements in relation to LIBOR transition and information on how it has exercised, and intends to exercise, its new regulatory powers in relation to LIBOR.

IBA maintains an oversight committee for LIBOR, which has responsibility for:

• Reviewing the methodology, scope and definition of the benchmark (including assessing its underlying market and usage);
• Overseeing any changes to the benchmark; and
• Overseeing and reviewing the LIBOR Code of Conduct.

The committee has broad market representation, being comprised of Contributor Banks, benchmark users, market infrastructure providers, independent non-executive directors of IBA, and other relevant experts. Representatives from the Board of Governors of the Federal Reserve System, the Swiss National Bank and the Bank of England also sit on the committee as observers.

Note: the changes to the methodology for 1-, 3- and 6-Months Sterling and Japanese Yen LIBOR settings from January 1, 2022 described above and in the FCA’s draft Article 23D Notification are being required by the FCA under its BMR powers and are not the result of any review or recommendation from IBA or the Oversight Committee.

Oversight Committee Meeting Public Minutes

LIBOR is published on each London business day for all applicable currencies and tenors, except as described below.

There is no LIBOR publication in any currency or tenor if the date is a public holiday in London.

Where a valid publication day is a public holiday in the major financial centre of a currency, there is no publication in the Overnight tenor only, for that currency. All other tenors are published as normal. This rule concerns only the Euro and US Dollar, since Yen and Swiss Franc do not have an Overnight tenor.

The following tables set out the relevant holidays for the different currencies and tenors. Specific dates for each year are available on the Holiday Calendars page. The Holiday Calendars also list the designated Value Dates, by currency and tenor, for each benchmark date.