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    FCA Informs About Changes to LIBOR Settings From End-2021

    January 04, 2022

    The Financial Conduct Authority (FCA) announced that publication of 24 LIBOR settings has ended and that, going forward, the 6 most widely used sterling and Japanese yen settings will be published using a changed methodology. From January 2022, these 6 LIBOR settings will be calculated in a way that does not rely on submissions from panel banks. FCA published a Notice requiring LIBOR’s administrator to change the way these LIBOR settings are calculated, in line with the draft Notice published in September 2021. FCA also published a Notice allowing use of the synthetic rates in all legacy contracts, except cleared derivatives. This aligns with the draft Notice published in November 2021.

    The LIBOR settings that have ended are:

    • All euro and Swiss franc LIBOR settings
    • The overnight/spot next, 1-week, 2-month, and 12-month sterling and Japanese yen LIBOR settings
    • The 1-week and 2-month USD LIBOR settings

    In the sterling, Japanese yen, Swiss franc, and euro LIBOR derivative markets, cleared contracts were converted to risk-free rates toward the end of 2021. Most uncleared derivative contracts in these currencies will also start using risk-free rates, under industry-agreed fallback language adopted through the ISDA protocol. The protocol is still open for adherence for any firm that has not yet done so. Synthetic yen LIBOR will cease at the end of 2022. Availability of synthetic sterling LIBOR is not guaranteed beyond end of 2022, so firms’ efforts to transition away from it should continue. FCA also reminded market participants that new use of synthetic LIBOR has been banned. The remaining 5 USD LIBOR settings will continue to be calculated using panel bank submissions until mid-2023. However, the new use of USD LIBOR has also been banned, with limited exceptions. The USD risk-free rate SOFR is already being widely used in new business and firms should now focus on converting their legacy USD LIBOR contracts by mid-2023. FCA will continue to monitor the impact of these changes and the progress of the remaining transition work, working closely with the Bank of England and the international counterparts.

     

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    Keywords: Europe, UK, Banking, Securities, LIBOR, Interest Rate Benchmarks, Benchmark Reforms, Synthetic LIBOR, Derivatives, Legacy Contracts, ISDA Protocol, Fallbacks, FCA

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