The interest rate benchmark LIBOR is being wound down. End dates have been announced for all the LIBOR panels. Firms must take appropriate action now to transition to alternative rates. Find out why.
LIBOR is currently produced in 7 tenors (overnight/spot next, 1 week, 1 month, 2 months, 3 months, 6 months and 12 months) across 5 currencies. It is based on submissions provided by a panel of 20 banks. These submissions are intended to reflect the interest rate at which banks could borrow money on unsecured terms in wholesale markets.
In 2017, the FCA and the Bank of England’s Financial Policy Committee (FPC) noted in 2017 that it had become increasingly apparent that the absence of active underlying markets and the scarcity of term unsecured deposit transactions raised serious questions about the future sustainability of the LIBOR benchmarks.
The LIBOR panel banks agreed to continue submitting to LIBOR until end-2021 (subsequently extended to end-June 2023 for US dollar LIBOR only), to enable time for the market to transition away from LIBOR.
In March 2021, the FCA and ICE Benchmark Administration (the administrator of LIBOR) announced that sterling, euro, Swiss franc and Japanese yen LIBOR panels, as well as panels for 1-week and 2-month US dollar LIBOR, will cease at end-2021, with the remaining US dollar LIBOR panels ceasing at end-June 2023.
We are consulting on our decision to use the new powers, which the Government has granted us under the Benchmarks Regulation, to require continued publication on a changed methodology (also known as a 'synthetic') basis for the 1-month, 3-month and 6-month sterling LIBOR settings and, until end-2022, the same Japanese yen LIBOR settings.
We will continue considering the case for using these powers for the 1-month, 3-month and 6-month US dollar LIBOR settings, when the US dollar LIBOR panel ends in June 2023, but market participants should not rely on our doing so. These synthetic LIBOR rates are not intended for use in new contracts, but may be available to some holders of 'legacy' LIBOR-referencing contracts that they are unable to amend.