On 5 July 2021, the FCA published a speech by Edwin Schooling Latter (Director of Markets and Wholesale Policy) entitled LIBOR – 6 months to go.

In his speech Mr Latter discusses what firms need to do now with respect to legacy conversion and US dollar market transition.

He also discusses what the ‘official sector’ has left to do. This includes:

  • For most of the LIBOR rates, the end of the panels means an end to LIBOR publication altogether. However, as set out in an earlier FCA announcement, the regulator thinks there is a case to propose a different path in relation to 1-month, 3-month and 6-month sterling and yen LIBOR settings.
  • On 24 June 2021, the FCA opened a consultation on using its new powers to implement synthetic LIBOR rates for these 6 sterling and yen LIBOR settings, at the end of the year. In line with the FCA’s published policy framework, the regulator is proposing that these synthetic LIBOR rates would be based on forward-looking term risk free reference rates, so SONIA for sterling, plus the relevant ISDA spread adjustment.
  • The FCA will also need to confirm who will be permitted to use these rates. It has already consulted on its proposed policy framework for determining this. The FCA will publish its final policy once it has considered the feedback.
  • The FCA will then consult on a specific application of this policy to the 6 sterling and Japanese yen LIBOR settings. That is, precisely which legacy contracts will be permitted to use any sterling and yen synthetic LIBOR rates. The FCA is aiming to confirm its final decisions on that as soon as it can in Q4 2021.
  • Any safety-net the FCA provides would only be for a time-limited period. Market participants are encouraged to amend their contracts where they can. There is no need to wait for the FCA’s synthetic LIBOR decision before doing so. Moreover, synthetic LIBOR will not give firms the benefits of converting to overnight rates compounded in arrears – the new centre of gravity of sterling interest rate markets, where liquidity is highest, and hedging costs therefore lowest. But firms can get there by active conversion.