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    FCA Announces Cessation Timeline for Certain LIBOR Benchmark Settings

    March 05, 2021

    FCA issued a statement on the cessation or loss of representativeness of the 35 LIBOR benchmark settings published by ICE Benchmark Administration or IBA. FCA has confirmed that all LIBOR settings will either cease to be provided by any administrator or no longer be representative immediately after December 31, 2021, in case of all EUR, CHF, and JPY settings as well as in case of the one-week and two-month USD settings. In addition, all LIBOR settings will either cease to be provided by any administrator or no longer be representative immediately after June 30, 2023 in case of the remaining USD settings.

    FCA has decided not to require any panel banks to continue to submit LIBOR beyond the dates from which they have notified their departure, or to require IBA to continue to publish LIBOR on the basis of panel bank submissions beyond such dates. Additionally authorities recognize that there are existing LIBOR contracts that are particularly difficult to amend ahead of the LIBOR panels ceasing—often known as the tough legacy contracts. FCA is taking steps to help reduce disruption in these cases. In the second quarter of 2021, FCA will consult on using the proposed new powers in the government legislation to allow FCA, under the Benchmarks Regulation, to require continued publication on a “synthetic” basis of some sterling and JPY LIBOR settings. FCA will consult on requiring ICE Benchmark Administration to continue to publish three sterling LIBOR settings (one-month, three-month, and six-month) for additional period after the end of 2021, in addition to the JPY LIBOR settings after the end of 2021 for one additional year. 

    FCA does not envisage using the proposed powers to compel ICE Benchmark Administration to continue to publish any JPY LIBOR settings after the end of 2022; consequently, the publication of these settings will cease permanently, immediately after a final publication on December 30, 2022. FCA will continue to consider the case for using these powers for one-month, three-month, and six-month USD LIBOR settings for an additional period after the end of June 2023. Any “synthetic” LIBOR will no longer be representative for the purposes of the Benchmarks Regulation and is not for use in new contracts. It is intended for use in tough legacy contracts only. In the second quarter of the year, FCA will also consult on which legacy contracts will be permitted to use any “synthetic” LIBOR rate.

    Post consultation in November 2020, FCA has published statements of policy, along with the feedback statement, in relation to certain proposed new Benchmarks Regulation powers have also been published. One statement of policy sets out the final approach on designating an unrepresentative benchmark using new powers under the proposed Article 23A of the Benchmarks Regulation. Another statement of policy sets out the final approach on requiring changes to a critical benchmark, including its methodology, using new powers under the proposed Article 23D of the Benchmarks Regulation. These statements confirm the FCA intentions on the methodology it would propose to use for any settings published on a synthetic basis (that is a forward-looking term rate version of the relevant risk-free rate plus a fixed spread aligned with the spreads in IBOR fallbacks of ISDA).

     

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    Keywords: Europe, UK, Banking, Securities, Benchmarks Regulation, Financial Services Bill, LIBOR, Interest Rate Benchmarks, Basel, IBA, FCA

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