Thankful For Increasing Clarity On LIBOR's Final Fate

• Published date: 28 November 2022
• Subject Matter: Finance and Banking, Financial Services, Securitization & Structured Finance, Commodities/Derivatives/Stock Exchanges
• Law Firm: Mayer Brown
• Author: Ms Mary Jo N. Miller and J. Paul Forrester

As we await the Federal Reserve Board to finalize the LIBOR transition regulations set forth in its notice of proposed rulemaking - Regulation Implementing the Adjustable Interest Rate (LIBOR) Act,¹ we are grateful² that on 23 November 2022 the Financial Conduct Authority ("FCA") published Consultation Paper CP22/21: Consultation on 'synthetic' US dollar LIBOR and feedback to CP22/11 ("CP22/21"), in which it (a) proposes to require continued publication, under an unrepresentative "synthetic" methodology, of 1-, 3-, and 6-month USD LIBOR until the end of September 2024 and (b) announced that 3-month synthetic GBP LIBOR will continue to be published until the end of March 2024, after which each will cease permanently. Comments are requested on or prior to 6 January 2023.

Consultation Background

On 30 June 2022, FCA published Consultation Paper CP22/11: Winding down 'synthetic' sterling LIBOR and US dollar LIBOR ("CP22/11"), and on 29 September 2022 announced that, as a result of feedback received to that date, (i) existing synthetic JPY LIBOR settings would end as originally planned after publication on 30 December 2022, (ii) 1- and 6-month synthetic GBP LIBOR settings would continue to be published for an additional 3 months and would cease permanently after publication on 31 March 2023, (iii) additional time was needed to consider consultation feedback with respect to the appropriate date for the orderly cessation of 3-month synthetic GBP LIBOR, and (iv) further consultation was necessary to assess the case for, and consequences of, a decision to compel publication of a synthetic USD LIBOR for a period of time. CP22/21 addresses the latter two points.

USD LIBOR

Based on responses received to CP22/11, which are discussed in some detail in CP22/21, FCA expects that there will be a pool of outstanding legacy contracts governed by UK or other non-US law, that will not be transitioned by operation of law by the US Adjustable Interest Rate (LIBOR) Act ("LIBOR Act"), and that have no realistic prospect of being amended to transition away from the 1-, 3-, and 6-month US dollar LIBOR settings by the end of June 2023.

With that in mind, CP22/21 makes three key proposals with respect to USD LIBOR: (A) to require ICE Benchmark Administration Limited, LIBOR's administrator, to continue publication of the 1-, 3- and 6-month US dollar LIBOR settings on a synthetic, and "permanently unrepresentative," basis until the end of September 2024, (B) to use the sum of CME Term...