Decimated LIBOR zombies stagger on

On the 23 November 2022, the FCA announced a significant extension for 3m GBP synthetic LIBOR and proposed the publication of synthetic USD LIBOR settings until 30 September 2024.  The Regulator will employ its powers under the UK Benchmarks Regulation to compel ICE Benchmark Administration to publish 3m synthetic LIBOR until 31 March 2024. The 1m and 6m synthetic GBP LIBOR dates of demise remain unchanged at end-March 2023, as per the 29 September 2022 extension. The announcement also re-confirms that the 3 synthetic JPY LIBOR settings will not be extended and will permanently cease at year end-2022.

In regards to USD LIBOR, the FCA have published a further consultation on their proposal to publish 1-, 3-, and 6m USD synthetic LIBOR until end-September 2024. Publication of USD LIBOR panel rates will cease on 30 June 2023. The proposal makes no provision for synthetic publication of overnight and 12m USD LIBOR settings. The consultation remains open until 6 January 2023, following which the FCA expects to make its decision by end Q2 2023. Calculation of the synthetic rate is proposed to be CME Term SOFR + the ISDA fallback spread.

Unsurprisingly the FCA reiterates that “Any synthetic LIBOR settings are only a bridge to appropriate alternative risk-free rates, not a permanent solution. As such, market participants should continue to prioritise active transition and focus on converting their legacy contracts to risk-free rates as soon as possible”.

In summary, the zombie LIBOR squad staggers on; synthetic JPY LIBOR will cease, to be shortly replaced by synthetic USD LIBOR, while the GBP zombie is down to its last limb. The FCA spent 4 years of tough talk to prepare the market for the 1 January 2022 end of LIBOR. This message was somewhat diluted by its November 2021 clarification (capitulation) that “tough legacy” contracts were effectively legacy contracts that had not been transitioned. The extension in respect of GBP 3m LIBOR is significant and is a recognition that progress has been slower than may have been hoped for. However, settings continue to be whittled away, post March 2023 the 3m GBP will be the only synthetic LIBOR still published, at least until the “Americans” join three months later. Market participants involved in LIBOR transition should regard this as the final extension and a sign to accelerate with an even heavier foot.

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