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Synthetic LIBOR available for certain currencies to facilitate wind-down of LIBOR

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The UK’s Financial Conduct Authority (“FCA”) announced on 5 March 2021 that Sterling, Japanese yen, Swiss franc and euro LIBOR panels will cease on 31 December 2021.

Following up on that announcement, on 29 September 2021, the FCA published an important note which confirmed that it would require the LIBOR benchmark administrator, The Intercontinental Exchange Benchmark Administration, to publish certain sterling and Japanese yen LIBOR settings using a “synthetic” methodology, based on term risk-free rates and the ISDA fixed spread adjustment, after end-2021 for a limited period. The purpose of these arrangements is to try to avoid disruption to legacy LIBOR based contracts that reference the 1-, 3- and 6-month sterling and Japanese LIBOR settings.

Two points however should be noted. First, these synthetic settings will be published on a non-representative basis. Secondly, the synthetic settings will only be permitted to be used in certain types of legacy contracts and the publication of synthetic LIBOR is not intended to delay or discourage active transition from the use of LIBOR to risk-free rates in contracts.

For more details on FCA’s note on synthetic settings, please click here.

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Simon Deane

Consultant | Banking and Finance

Email or call +852 2825 9209

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