ICE Benchmark Administration Provides Update on LIBOR Cessation and Synthetic LIBOR

ICE Benchmark Administration (IBA), the authorised and regulated administrator of LIBOR, has provided an update on LIBOR settings yet to be ceased and synthetic LIBOR methodologies.

The UK FCA issued its final messages on LIBOR at the end of May 2023, prior to the end of the US dollar LIBOR panel and reminding market participants of its March 2021 announcement that publication of the overnight and 12-Month US dollar LIBOR settings will cease immediately following publication on 30 June 2023.

The FCA previously announced that it had decided to use its powers under the UK Benchmarks Regulation (UK BMR) to require IBA to continue the publication of the 1-, 3- and 6-Month US dollar LIBOR settings using a changed synthetic methodology for a temporary period from 3 July 2023, and intends to cease these settings immediately after publication on 30 September, 2024.

The FCA has notified IBA that it has designated these three LIBOR settings as ‘Article 23A benchmarks’ for the purposes of the UK BMR with effect from 1 July 2023, which it must do in order to enable methodology changes. The FCA has also noted that any settings published under a synthetic methodology will no longer be representative of the underlying market or economic reality the setting is intended to measure, as those terms are used in the BMR.

All new use of synthetic US dollar LIBOR by UK supervised entities will be prohibited under the UK BMR, which the FCA says will override the exemptions to the prohibition on the new use of US dollar LIBOR imposed on 1 January 2022. The FCA has decided to permit the use of 1-, 3- and 6-month synthetic US dollar LIBOR settings by UK supervised entities in legacy contracts, with the exception of cleared derivatives.

The FCA has also published feedback on its November 2022 consultation on synthetic US dollar LIBOR, and the modifications it proposes to make to the UK BMR as it will apply to 1-, 3- and 6-Month synthetic US dollar LIBOR, having regard to the effects of its designation of these three settings as Article 23A benchmarks and the imposition of its proposed changes to the methodology for the settings.

Finally, the FCA requires IBA to continue to publish the 3-month synthetic sterling LIBOR setting, which it expects to cease immediately following publication on 28 March 2024.