Market participants have been warned not to kid themselves. The last remaining settings of the London InterBank Offered Rate—those relating to select US Dollar tenors—are scheduled to become unavailable following publication on 30 June 2023. After this final USD LIBOR publication, the sunsetting of “the world’s most important number” will be complete.
As all should be aware, in July 2017 the Chief Executive of the UK Financial Conduct Authority (“FCA”) advised that the absence of active underlying funding markets raised “a serious question” about the future of LIBOR, and stated that panel bank support for LIBOR would not continue after the end of 2021.
Subsequently, on 5 March 2021, after consultation with the market, ICE Benchmark Administration (“IBA”) announced that all non-USD key LIBORs would cease publication after 2021, and that select settings of USD LIBOR would continue until 30 June 2023, after which they also would be discontinued.
In connection with that announcement, the FCA advised that it would not use its powers to compel continued publication of LIBOR based on panel bank submissions beyond the dates set by IBA, but would consult on compelling publication of 3 tenors each of GBP and JPY LIBOR pursuant to a “synthetic methodology” for a limited period to ensure an orderly wind-down of contracts linked to those rates. On 16 November 2021, FCA formalized its decision to declare 1-, 3-, and 6-month GBP and JPY LIBOR settings “permanently unrepresentative” but to require IBA to publish them under a “changed, ‘synthetic’ methodology” for the duration of 2022. FCA advised in its September 2021 Article 21(3) BMR Notice that it believed that this extension would be sufficient to transition JPY LIBOR contracts, but left open the possibility of further extending the availability of synthetic GBP LIBOR.
As we reach the halfway point in 2022, the intentions of FCA are becoming clearer. In April FCA provided an update of anticipated next steps on its Benchmarks Regulation portal page, stating, “We will seek views on retiring 1-month and 6-month synthetic sterling LIBOR at the end of 2022, and on when to retire 3-month sterling synthetic LIBOR, via a public consultation around the end of Q2 / early Q3 2022.” That consultation—CP22/11: Winding down ‘synthetic’ sterling LIBOR and US Dollar LIBOR—was published today, 30 June 2022, and seeks market input regarding (a) whether to extend the availability of 1- and 6-month synthetic GBP LIBOR through 31 March 2023, (b) when, based on the size and nature of remaining exposures, it will be possible for 3-month synthetic GBP LIBOR to cease, and (c) whether there are any “insurmountable barriers” to a smooth transition away from USD LIBOR on or before 30 June 2023. The consultation closes 24 August 2022.
Importantly, we note that last week, at a 22 June 2022 ISDA event, the FCA head of markets policy was quoted as warning (i) FCA have been clear that synthetic rates will not be continued “simply for the convenience of those who could take action, but do not,” (ii) no one should be relying on the creation of a synthetic USD LIBOR after June 2023, and (iii) no one should expect the current deadlines to change.
For those that have procrastinated in transitioning their legacy LIBOR portfolio, now is the time to act. No joke.