CP22/11: Winding down ‘synthetic’ sterling LIBOR and US dollar LIBOR

Read CP22/11[2]

Why we are consulting

In September 2021, we announced[3] that we would compel the continued publication of the 1-, 3- and 6-month sterling LIBOR settings for a limited time after end-2021, using a ‘synthetic’ methodology. We have been clear that synthetic LIBOR is temporary. We can compel its continued production for up to one year at a time, for a maximum period of 10 years. Once outstanding contracts that reference a particular LIBOR setting have had time to transition to an alternative benchmark – or to make provision to do so – it may no longer be appropriate for us to require continued publication of that setting. This consultation is intended to help us in our review of our decisions to require continued publication.

For US dollar LIBOR, in due course we will need to assess whether the remaining settings can be wound down in an orderly fashion when the panel ends on 30 June 2023, and if not, whether a synthetic US dollar LIBOR rate might be appropriate for certain contracts that are not within scope of LIBOR-related federal legislation. We want to understand whether there are any insurmountable barriers to transitioning outstanding US dollar LIBOR contracts before or upon the cessation of the panel, and if so, the size and nature of any exposures that market participants expect may remain at that point.

Who this applies to

This consultation will be of interest to:

• regulated and unregulated users of the remaining synthetic sterling LIBOR and US dollar LIBOR settings, including consumers, and relevant trade associations, both within and outside the UK
• service providers for LIBOR-linked contracts and / or users of LIBOR, such as lawyers, agents, advisers and third-party administrators
• the administrator of LIBOR, and possibly the administrators of other benchmarks
• other stakeholders with an interest in the orderly wind-down of LIBOR, for example international authorities

Background to LIBOR transition

We, alongside the Bank of England, other regulators internationally, and industry working groups in the LIBOR currency jurisdictions, have been encouraging transition away from LIBOR to alternative Risk-Free Rates.

On 31 December 2021, publication of 24 LIBOR settings ended. For the 1-, 3- and 6-month sterling and Japanese yen LIBOR settings, we required the administrator of LIBOR to continue publication on a synthetic (and unrepresentative) basis from end-2021. This was to give the holders of certain legacy contracts more time to complete transition.

Five US dollar LIBOR settings will continue to be calculated using panel bank submissions until end-June 2023, when the US dollar LIBOR panel will end.

Respond to this consultation

This consultation has now closed.

Next steps

On 29 September 2022, we announced[4] our decision to require continued publication of 1- and 6-month synthetic sterling LIBOR until end-March 2023, after which these settings will cease permanently.

On 23 November 2022, we published CP22/21[1] asking for views on proposals requiring the 1‑, 3‑ and 6‑month US dollar LIBOR settings to be published on a synthetic basis until end‑September 2024. We also requested feedback on the methodology for building the synthetic US dollar LIBOR settings, and what use of them should be allowed.

Following feedback, in CP22/21 we also confirmed our decision to allow 1‑ and 6‑month sterling LIBOR to cease at end‑March 2023.

We remind market participants that the synthetic yen LIBOR settings will cease at end-2022, and market participants using these rates must prepare for this.