FCA Issues Report Proposing USD Synthetic LIBOR Publication and Continued Synthetic GBP Publication and ISDA® Publishes Guidance on Cessation of USD LIBOR ICE Swap Rate | Practical Law

FCA Issues Report Proposing USD Synthetic LIBOR Publication and Continued Synthetic GBP Publication and ISDA® Publishes Guidance on Cessation of USD LIBOR ICE Swap Rate | Practical Law

The UK Financial Conduct Authority (FCA) published a report proposing publication of synthetic USD LIBOR and continued publication of synthetic GBP LIBOR, and ISDA issued guidance to addresses the ICE Benchmark Administration (IBA) announcement on cessation of all tenors of the USD LIBOR ICE swap rate.

FCA Issues Report Proposing USD Synthetic LIBOR Publication and Continued Synthetic GBP Publication and ISDA® Publishes Guidance on Cessation of USD LIBOR ICE Swap Rate

by Practical Law Finance
Published on 08 Dec 2022 • USA (National/Federal)
The UK Financial Conduct Authority (FCA) published a report proposing publication of synthetic USD LIBOR and continued publication of synthetic GBP LIBOR, and ISDA issued guidance to addresses the ICE Benchmark Administration (IBA) announcement on cessation of all tenors of the USD LIBOR ICE swap rate.
On November 23, 2022, the UK Financial Conduct Authority (FCA) published a report proposing publication of synthetic US dollar (USD) LIBOR, as well as continued publication of synthetic GBP LIBOR (see FCA Proposes Synthetic USD LIBOR Publication).
On November 28, 2022, ISDA published guidance, relevant in the context of the Supplement 88 to the 2006 ISDA Definitions and Version 3.0 of the 2021 ISDA Interest Rate Derivatives Definitions, directed to parties to over-the-counter (OTC) derivatives transactions that incorporate USD LIBOR ICE swap rate fallback provisions, and a module that address the future cessation of all tenors of the USD LIBOR ICE Swap Rate (see ISDA Guidance on IBA LIBOR Cessation Announcement).

FCA Proposes Synthetic USD LIBOR Publication

On November 23, 2022, the FCA published a report on the cessation of LIBOR in which it:
  • Proposed the adoption of a synthetic USD LIBOR, to continue publication of USD LIBOR on a synthetic basis. USD LIBOR will cease to be published after the June 30, 2023 publication on its current basis of calculation which reflects the daily average, adjustment, and release of funding rates by a group of large banks, known as “panel banks”.
  • Announced it will require ICE Benchmark Administration (IBA) to continue to publish the 1-month and 6-month synthetic GBP sterling LIBOR settings until the end of March 2023, after which each will cease permanently.
  • Reminded market participants for publication to cease permanently at year-end 2022 for synthetic Japanese yen LIBOR.
If the report's proposals are finalized, below are the dates for the cessation of LIBOR publication:
  • Overnight and 12-month USD LIBOR settings will cease after publication on June 30, 2023.
  • 1-month, 3-month, and 6-month synthetic USD LIBOR settings will cease after publication on September 30, 2024.
  • 1-month and 6-month synthetic GBP LIBOR settings will cease after publication on March 31, 2023.
  • 3-month synthetic GBP LIBOR will cease after publication on March 29, 2024.
  • 1-month, 3-month, and 6-month synthetic JPY LIBOR settings will cease after publication on December 30, 2022.
The report was directed to:
  • Regulated and unregulated users of LIBOR, both within and outside the UK.
  • Service providers for LIBOR-linked contracts and/or users of LIBOR.
  • The LIBOR administrator.
  • Providers of relevant inputs to a potential synthetic USD LIBOR.
  • Other stakeholders with an interest in the orderly wind-down of LIBOR.
The report also provides that synthetic USD LIBOR should be calculated as the sum of the CME Term Secured Overnight Financing Rate (SOFR) reference rate plus the ISDA fixed spread adjustment for the corresponding settings (see Practice Note, Practice Point: Understanding the ISDA® 2021 IBOR Fallbacks Supplement and Protocol: March 2021 SOFR Spread Adjustments for USD LIBOR).
The deadline for public comment on the FCA proposal is January 6, 2023.

ISDA Guidance on IBA ICE Swap Rate Cessation Announcement

On November 28, 2022, ISDA published guidance for parties to OTC derivatives transactions that are affected by the ICE Benchmark Administration (IBA) announcement of the future cessation of all tenors of the USD LIBOR ICE Swap Rate® (ICE swap rate). The ICE swap rate is the standard global benchmark for swap rates and spreads for interest rate swaps. On November 14, 2022, IBA announced that the calculation and publication of each tenor of the ICE swap rate will cease immediately after publication on June 30, 2023 (see Legal Update, IBA Issues Statement on Cessation of USD LIBOR ICE Swap Rate).
The ISDA guidance applies to:
ISDA has also published the following, which can be by members accessed on the ISDA website:
  • Combined swap rates amendment agreement. This form enables parties to amend:
    • one or more existing transaction confirmations for legacy transactions incorporating the 2006 Definitions or Version 1.0 or 2.0 of the 2021 Definitions that reference the USD LIBOR ICE swap rate to introduce equivalent fallbacks for the USD LIBOR ICE swap rate to those provisions (USD LIBOR ICE Swap Rate Fallback Provisions) set out in Supplement 88 and Version 3.0 of the 2021 Definitions; and
    • existing transaction confirmations to introduce fallbacks for the GBP LIBOR ICE swap rate and the JPY LIBOR Tokyo swap rate.
  • USD ISR standalone amendment agreement. This standalone form enables parties to amend one or more existing transaction confirmations for legacy transactions incorporating the 2000 ISDA Definitions, the 2006 Definitions, or Version 1.0 or Version 2.0 of the 2021 Definitions that reference the USD LIBOR ICE swap rate to incorporate the USD LIBOR ICE Swap Rate Fallback Provisions.
  • USD ISR amendment agreement. This standalone form of amendment agreement enables parties to amend one or more existing transaction confirmations for legacy transactions incorporating the 2000 ISDA Definitions, the 2006 Definitions, Version 1.0 or Version 2.0 of the 2021 Definitions, or transaction confirmations containing generic references to the USD LIBOR ICE swap rate to incorporate the USD LIBOR ICE Swap Rate Fallback Provisions.
  • June 2022 Benchmarks Module to the ISDA 2021 Fallbacks Protocol. This module enables parties to incorporate the USD LIBOR ICE Swap Rate Fallback Provisions into legacy transactions that:
    • reference the USD LIBOR ICE swap rate and incorporate the 2000 Definitions, the 2006 Definitions, or Version 1.0 or Version 2.0 of the 2021 Definitions; and
    • contain generic references to the USD LIBOR ICE swap rate.
    For more information, see Legal Update, ISDA Publishes June 2022 Benchmark Module of ISDA 2021 Fallbacks Protocol for USD LIBOR Swap Rates.
"ISDA" is a registered trademark of the International Swaps and Derivatives Association, Inc. (ISDA). ISDA is not a sponsor of Practical Law and had no part in the development of this Update.