FCA consults on LIBOR wind down

Troubled financial benchmark LIBOR will finally be put out of its misery by the end of September 2024, under a proposal from the U.K.’s Financial Conduct Authority (FCA).

The FCA launched a consultation on a proposal that would see the regulator require LIBOR’s administrator, ICE Benchmark Administration Ltd. (IBA), to publish a synthetic U.S. dollar LIBOR (one-, three- and six-month settings) until the end of the third quarter 2024 — at that point, the publication would permanently cease, marking the end of LIBOR.

“While we consider synthetic LIBOR a fair and reasonable approximation of what LIBOR might have been, it will no longer be representative,” the FCA said in a release accompanying the consultation. “It is not for use in new contracts. It is intended for use in certain legacy contracts only.”

Regulators have been seeking to do away with the widely-used financial benchmark amid ongoing concerns about the integrity and reliability of survey-based benchmarks in the wake of the LIBOR market manipulation scandal.

However, the benchmark’s extensive use in derivative and loan contracts has made the transition to new, alternative rates a tricky practical challenge.

Alongside its latest plans for U.S. dollar LIBOR, the FCA noted that the synthetic Yen LIBOR settings will still cease at the end of this year.

“Market participants using these rates must take the necessary action to prepare for this,” the FCA said.

The one- and six-month settings of U.K. sterling LIBOR is due to cease at the end of March 2023, but the FCA said that it will still require IBA to publish the three-month version until the end of March 2024.

And, the publication of overnight and 12-month U.S. dollar LIBOR settings will stop at the end of June 2023.

Canadian policymakers are also working to replace the Canadian Dollar Offered Rate (CDOR) benchmark with the Canadian Overnight Repo Rate Average (CORRA) at the end of June 2024.

The FCA’s latest consultation will remain open until Jan. 6, 2023. The regulator said that it expects to finalize its decision in late Q1 or early Q2 next year.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.