BOJ and JFSA Respond to IBA and FCA Announcements on LIBOR Cessation
BOJ and JFSA published a response to the IBA announcement on the end date of LIBOR panel publication and the FCA announcement on the intention to consult on the publication of synthetic JPY LIBOR. In their response, BOJ and JFSA have specified the actions needed toward the end of 2021 when panel-based LIBOR will cease, in addition to setting out their expectations with respect to the synthetic JPY LIBOR.
In principle, either active conversion to alternative reference rates or insertion of fallback language is necessary for legacy contracts referencing LIBOR in preparation for the permanent cessation of LIBOR. On March 05, 2021, IBA notified that panel-based LIBOR will cease at the end of 2021, except for certain USD LIBOR settings. According to the response statement, it is important that each financial institution should proceed to explain to its customers and amend contracts to progress either active conversion or insertion of fallback language as soon as practicable, in conformity with the “Roadmap to prepare for the discontinuation of LIBOR” released by the Cross-Industry Committee on JPY Interest Rate Benchmarks in August 2020 as well as the transition plan of each financial institution.
While FCA has announced that it will consult on using the proposed new powers to require publication of synthetic JPY LIBOR for one additional year after the end of 2021, the Financial Services Bill introduced to the UK Parliament in October 2020 has not yet been enacted. Even if the Bill is enacted, in the UK, as expected, FCA could only compel IBA to publish a synthetic LIBOR for a limited period of time and its use will be restricted to legacy contracts that cannot feasibly be transitioned away from LIBOR. Therefore, it is of utmost importance that preparations toward the transition away from LIBOR continue without reliance on synthetic LIBOR. Continuous efforts are necessary to cease the issuance of new loans and bonds referencing JPY LIBOR by the end of June 2021 and to significantly reduce the amount of loans and bonds referencing JPY LIBOR by the end of September 2021. While it is premature to consider the use of synthetic JPY LIBOR at the moment, the following are the expectations of BOJ and JFSA with respect to the potential publication of synthetic JPY LIBOR:
- Use of synthetic JPY LIBOR in new contracts and transactions. It is of utmost importance to steadily reduce the amount of contracts referencing JPY LIBOR to advance orderly transition away from JPY LIBOR, even if synthetic JPY LIBOR can be a “safety net.” Any synthetic JPY LIBOR should not be used in new contracts and transactions.
- Use of synthetic JPY LIBOR in legacy contracts and transactions. In Japan, synthetic JPY LIBOR should be considered as a potential “safety net” and used only for legacy contracts that cannot feasibly be transitioned away from JPY LIBOR. The Cross-Industry Committee, in close cooperation with a wide range of market participants, intends to discuss the risks and uncertainties with a view to considering the nature of potential tough legacy that cannot be transitioned away from JPY LIBOR before the end of 2021.
Keywords: Asia Pacific, Japan, Banking, Securities, LIBOR, Interest Rate Benchmarks, Benchmark Reforms, Basel, LIBOR Transition, Synthetic LIBOR, IBA, FCA, BOJ, JFSA
Featured Experts

María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer

Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.

Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Previous Article
PRA and FCA Consult on Bilateral Margin Requirements for DerivativesRelated Articles
EBA Clarifies Use of COVID-19-Impacted Data for IRB Credit Risk Models
The European Banking Authority (EBA) published four draft principles to support supervisory efforts in assessing the representativeness of COVID-19-impacted data for banks using the internal ratings based (IRB) credit risk models.
EP Reaches Agreement on Corporate Sustainability Reporting Directive
The European Council and the European Parliament (EP) reached a provisional political agreement on the Corporate Sustainability Reporting Directive (CSRD).
PRA Consults on Model Risk Management Principles for Banks
The Prudential Regulation Authority (PRA) launched a consultation (CP6/22) that sets out proposal for a new Supervisory Statement on expectations for management of model risk by banks.
EC Regulation Amends Standards for Calculating Credit Risk Adjustments
The European Commission (EC) published the Delegated Regulation 2022/954, which amends regulatory technical standards on specification of the calculation of specific and general credit risk adjustments.
BIS Hub Updates Work Program for 2022, Announces New Projects
The Bank for International Settlements (BIS) Innovation Hub updated its work program, announcing a set of projects across various centers.
EIOPA Issues Cyber Underwriting Proposal, Statement on Open Insurance
The European Insurance and Occupational Pensions Authority (EIOPA) published two consultation papers—one on the supervisory statement on exclusions related to systemic events and the other on the supervisory statement on the management of non-affirmative cyber exposures.
US Senate Members Seek Details on SEC Proposed Climate Disclosure Rule
Certain members of the U.S. Senate Committee on Banking, Housing, and Urban Affairs issued a letter to the Securities and Exchange Commission (SEC)
EIOPA Consults on Review of Securitization Framework in Solvency II
The European Insurance and Occupational Pensions Authority (EIOPA) published a consultation paper on the advice on the review of the securitization prudential framework in Solvency II.
UK Authorities Issue Regulatory and Reporting Updates for Banks
The Prudential Regulation Authority (PRA) issued a statement on PRA buffer adjustment while the Bank of England (BoE) published a notice on the statistical reporting requirements for banks.
BCBS Issues Climate Risk Principles while HKMA Expresses Its Support
The Basel Committee on Banking Supervision (BCBS) issued principles for the effective management and supervision of climate-related financial risks.