Yesterday, The FCA published a promised consultation on the winding down of synthetic GBP and USD LIBOR. 31 December 2021 famously marked the funeral for 24 LIBOR settings. However, in order to allow more time for “tough legacy” contracts to transition to the replacement RFRs, the FCA continued to compel publication of synthetic LIBOR rates for the 1-, 3- and 6-month GBP and JPY settings. Readers may recall that the “tough” in legacy turned out to be anything that was slightly irksome. Publication of synthetic LIBORs is on an annually re-commissioned basis for a maximum of 10 years.
The consultation merely reminds readers that synthetic JPY LIBOR settings will cease at end-2022. There is accordingly no perceived need for, or possibility of, further extension.
The consultation considers the situation each tough legacy assets class individually while acknowledging that some OTC derivatives are necessarily linked to underlying products. In respect of derivatives, bonds, securitisations, syndicated loans, bilateral loans and funds, the consultation asserts broadly the similar conclusions. Namely that applicable transition mechanisms exist and that the remaining 275 days to 31 March 2023 will be sufficient. The consultation does acknowledge that LIBOR-linked mortgages may present more problems due to low counterparty engagement. However, the FCA offers at least the hope that the numbers are low, existing fallbacks may apply and that renewed strenuous efforts on the part of lenders will effect transition.
The consultation again considers each asset class, this time in respect of USD LIBOR. The Regulator reaches the same conclusion, namely that it does not see grounds for an extension beyond the prescribed end-June 2023. It is aided in this by the fact that a significant number of USD LIBOR-referencing contracts are governed by US law, for which Federal transition solutions exist.
In summary, JPY LIBOR will not be staggering on past its scheduled end date. The FCA see no need to continue the publication of synthetic GBP LIBOR beyond end-March 2023. Similarly, USD LIBOR will expire end-June 2023 with little to no chance of a synthetic afterlife.Contact Us