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PwC comments on the FCA’s proposed decisions on the use of LIBOR

The Financial Conduct Authority (FCA) published a consultation paper on 29 September 2021, seeking views on the permitted use of the one-month, three-month and six-month sterling and yen synthetic LIBOR settings after 31 December 2021.

The paper also sets out the FCA’s proposals on how it will prohibit new use of five US dollar LIBOR settings (overnight,  one-month, three-month, six-month, and 12 month), continuing to be published until 30 June 2023.

The FCA proposes to permit legacy use of the six sterling and yen LIBOR settings in all contracts (except cleared derivatives) and prohibit new use of the continuing US dollar LIBOR settings from 31 December 2021 (with certain exceptions).

The consultation follows the FCA’s notice confirming its decisions to compel the continued publication of the remaining six sterling and Japanese yen LIBOR settings for a limited time period after 31 December 2021, using a 'synthetic' methodology. This is to support an orderly wind-down of LIBOR.

PwC Partner Andrew Gray comments:

“The FCA’s proposals on the permitted use of synthetic LIBOR in legacy contracts are likely to be a huge relief for market participants everywhere. This is the news and clarification that firms in the UK and internationally have been waiting for for the past year. The impact on the final months of LIBOR transition will also be significant.”

“The lack of restrictions, limitations or conditionality proposed on the legacy use of the six synthetic LIBOR settings will give firms wider remit to manage the final months of the transition. Despite the significant progress made by firms, a large number of LIBOR referencing ‘tough legacy’ contracts remain in place, with no realistic possibility to be transitioned before the year end.”

“The proposals are also likely to result in a fairer treatment of the UK regulated firms. The FCA does not regulate firms outside the UK or corporate users of LIBOR-linked products.These proposals will simplify the transition from LIBOR for business within the UK, although activity outside the UK will still be subject to local regulatory requirements which may remain uncertain.”

“Firms should still remember that the publication of synthetic LIBOR will continue for a limited time period only. For sterling, the FCA will consult on the need annually, for up to ten years. For the Japanese yen, the FCA’s intention is to stop the publication at the end of 2022.”

“The FCA’s proposal to prohibit new use of the continuing US dollar LIBOR settings from 31 December 2021 until 30 June 2023 (with certain exceptions) remains consistent with the previous announcements made by the US regulators.”

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