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The FCA announced on March 5, 2021 the future cessation and loss of representativeness of the LIBOR benchmarks. This news was expected, but its comprehensiveness is very welcome.

As a result, December 31, 2021 will be the last day on which all euro and Swiss franc LIBOR tenor settings are published, and some sterling, yen and U.S. dollar settings will also cease then.

December 31, 2021 will also be the last day the remaining sterling and yen settings are considered representative.

June 30, 2023 will be the last day on which the remaining tenors of U.S. dollar LIBOR settings are considered representative.

The FCA’s announcement went on to describe the start of a consultation in relation to the possible continued publication of one month, three month and six month sterling and yen LIBOR on a non-representative, synthetic basis for a period after the end of 2021. The FCA noted that it will also consider a similar consultation for the continued publication on a synthetic basis of certain U.S. dollar LIBOR settings.

The announcement constitutes an Index Cessation Event under ISDA’s IBOR Fallbacks Supplement and the ISDA 2020 Fallbacks Protocol for all LIBOR settings. This means that the fallback spread adjustments referenced by those documents is fixed as of March 5, 2021 for all euro, sterling, Swiss franc, U.S. dollar and yen LIBOR settings. The ARRC has subsequently confirmed that, in its opinion, a “Benchmark Transition Event” has occurred and its recommended spread adjustments match ISDA’s spread adjustments for U.S. dollar LIBOR (except in relation to loans to consumer borrowers).

The FCA made its announcement of the future loss of representativeness on the understanding that the majority of existing contributors to LIBOR intend to stop providing submissions. ICE Benchmark Administration (IBA, the LIBOR benchmark administrator) provided further clarity in a feedback statement published on March 5, 2021 stating that for all LIBOR settings (other than five U.S. dollar LIBOR settings) a majority of LIBOR panel banks had notified it of their intentions to cease submitting input data after the publication on December 31, 2021 (for the five U.S. dollar settings, the relevant date is instead June 30, 2023).

The FCA’s announcement is in line with its powers under existing legislation, although under the proposed enhancements to the UK BMR set out in the Financial Services Bill, it will be able to determine lack of representativeness in other contexts besides the departure of panel banks (the timing of when the Financial Services Bill will become law is not yet certain).

The FCA could have chosen to compel contributors to continue submitting, but rather it is consulting on compelling the IBA to continue to publish certain tenors of sterling and yen settings for periods after the start of 2022. The FCA made clear that synthetic LIBOR would not be published for new contracts but would be available for tough legacy contracts. So, the market should not see references to synthetic LIBOR as a signal that LIBOR is continuing for the broader market.

While the FCA’s announcement on March 5, 2021 is an important event in the timeline for the end of LIBOR, it will be interesting to see what the enactment of the proposed Financial Services Bill and the production of the synthetic LIBOR means for the market.

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