The end of LIBOR and the Financial Services Bill

On the 5 March 2021 the Financial Conduct Authority (FCA) published a statement announcing the dates of the future cessation or loss of representativeness of all 35 LIBOR settings currently published by ICE Benchmark Administration Limited (IBA).

The following 26 LIBOR settings will permanently cease:

• Immediately after 31 December 2021: all seven euro LIBOR settings, all seven Swiss franc LIBOR settings, the Spot Next, one-week, two-month and 12-month Japanese yen LIBOR settings, the overnight, one-week, two-month and 12-month sterling LIBOR settings and the one-week and two-month US dollar LIBOR settings
• Immediately after 30 June 2023: the overnight and 12-month US dollar LIBOR settings

The FCA will consult on requiring IBA to continue publishing one-month, three-month and six-month sterling LIBOR on a non-representative, synthetic basis for a further period after the end of 2021, and one-month, three-month and six-month Japanese yen LIBOR on a non-representative, synthetic basis for an additional year after end-2021, under proposed new powers included in the Financial Services Bill. These settings will no longer be representative and representativeness will not be restored immediately after 31 December 2021.

Market participants are reminded that, although publication of certain LIBOR settings on a synthetic basis would be intended to assist legacy contracts, new use of this synthetic LIBOR by UK regulated firms in regulated financial instruments would be prohibited by the BMR as amended by the Financial Services Bill. Continued use for legacy contracts would also be subject to the FCA’s proposed powers to permit such use.

ISDA has also published a statement noting that the FCA announcement constitutes an index cessation event under the IBOR Fallbacks Supplement and the ISDA 2020 IBOR Fallbacks Protocol for all 35 LIBOR settings. As a result, the fallback spread adjustment published by Bloomberg is fixed as of the date of the announcement for all euro, sterling, Swiss franc, US dollar and yen LIBOR settings.

The announcement is likely to have implications under rate switch mechanics and, potentially, replacement of screen rate provisions if the relevant optional wording has been included in those provisions. For transactions that do not include mechanisms to deal with LIBOR transition, detailed amendments of existing documentation may be necessary.

The Loan Market Association (LMA) published on 5 June 2021 a recommended form of reference rate selection agreement for use in relation to legacy transactions and the transition to alternative reference rates.

For more information on LIBOR transition, please click here and here.