<p class=”MsoNormal”> The Financial Conduct Authority
(FCA) has given approval for the continued publication of the ‘synthetic’ US
dollar London Interbank Offered Rate (LIBOR) for a ‘short period after 30 June
2023’ when the US dollar LIBOR panel ceases. The rate permitted to be published
by the ICE Benchmark Administration
Limited (IBA) includes the one, three and six-month synthetic US dollar LIBOR
settings. </p><p class=”MsoNormal”>FCA Sanctions US Dollar LIBOR Settings</p><p class=”MsoNormal”>The UK financial regulator’s
decision, which was <a href=”https://www.fca.org.uk/news/news-stories/fca-announces-decision-synthetic-us-dollar-libor” target=”_blank” rel=”follow”>announced</a> on Monday, comes four months after the watchdog
launched a consultation on its proposal for the three US dollar LIBOR settings to be published after 30 June 2023. In its new update, the FCA said the
permission will take effect on July 1, 2023. New use of the synthetic US dollar
LIBOR will not be permitted, it added.</p><p class=”MsoNormal”>In early 2021, the FCA announced
that it will <a href=”https://www.financemagnates.com/institutional-forex/fca-issues-timeline-to-cease-libor-benchmark/” target=”_blank” rel=”follow”>cease the publication of LIBOR</a> for the pound, sterling, euro,
Swiss franc, Japanese yen and the one-week and two-month US dollar settings by
year-end. In addition, the regulator disclosed the plan to halt the rest of the US dollar settings
on June 30, 2023. </p><p class=”MsoNormal”>The action came after the reputation of LIBOR, which measures the cost of unsecured borrowing between banks, <a href=”https://www.financemagnates.com/institutional-forex/ex-barclays-traders-fined-1-2-million-for-libor-scheme/” target=”_blank” rel=”follow”>was soiled through bank manipulation</a>.</p><p class=”MsoNormal”>In November of 2021, the
regulator sanctioned <a href=”https://www.financemagnates.com/institutional-forex/fca-confirms-on-temporary-use-of-synthetic-libor-rates/” target=”_blank” rel=”follow”>the temporary use of ‘synthetic’ sterling and yen LIBOR
rates</a> in all legacy LIBOR contracts that had not been changed by the year-end
deadline. A year later, the regulator <a href=”https://www.financemagnates.com/institutional-forex/the-fca-proposes-synthetic-dollar-libor-rate/” target=”_blank” rel=”follow”>proposed the ‘synthetic’ US dollar LIBOR</a> as regulatory estimates show a $70 trillion of outstanding dollar LIBOR exposures
beyond June 2023. </p><p class=”MsoNormal”>With the three US dollar LIBOR
settings now approved, the FCA noted that the settings will be calculated by the
IBA using “the relevant CME Term Secured Overnight Financing Rate (SOFR)
Reference Rate plus the respective ISDA fixed spread adjustment.”</p><p class=”MsoNormal”>FCA Explains Publication Period</p><p class=”MsoNormal”>In the statement released on Monday, the FCA noted that the overnight and 12-month US dollar LIBOR settings will cease
permanently after publication on 30 June 2023. This is even as the regulator
has permanently stopped the publication of the 1 and 6-month synthetic sterling
LIBOR settings. The settings were published for the final time last Friday (March 31,
2023), the watchdog disclosed.</p><p class=”MsoNormal”>The FCA started requiring the IBA to
publish the one, three and six-month synthetic sterling LIBOR settings from
the first of January last year. With the other versions now stopped, the three-month setting will be stopped on Thursday, March 28, 2024, according to the regulator.</p><p class=”MsoNormal”>“We intend that publication of
the 1-, 3- and 6-month synthetic US dollar LIBOR settings will cease on 30
September 2024. We will review our decision, in line with the requirements of
the Benchmarks Regulation. However, unless unforeseen and material events were
to happen, we expect to follow the direction and timeline we have indicated. We
consider providing early notice of this is helpful for market participants,” the FCA explained in the statement.</p><p class=”MsoNormal”>The UK watchdog reiterated that
the synthetic LIBOR is only “a temporary bridge” and, therefore, urged firms to continue
their active transition away from the US dollar benchmark. Furthermore, it noted that the
listed US dollar settings are permitted for “all legacy contracts except cleared derivatives.”</p><p class=”MsoNormal”>GMO’s New Investment; Komainu Enhances Custody; <a href=”https://www.financemagnates.com/forex/news-nuggets-3-april-gmos-new-investment-komainu-enhances-custody/” target=”_blank” rel=”follow”>read today’s nuggets</a>.</p>
This article was written by Solomon Oladipupo at www.financemagnates.com.
