FCA Proposes Temporary ‘Synthetic’ Sterling and Yen LIBOR Rates

The Financial Conduct Authority (FCA) Financial Conduct Authority (FCA) The Financial Conduct Authority (FCA) is the largest financial regulator for all financial markets in the United Kingdom (UK).The UK regulator is responsible for the conduct of firms authorized under the Financial Services and Markets Act 2000. Moreover, the FCA is also responsible for the regulation of behavior in retail and wholesale financial markets, supervision of the trading infrastructure that supports those markets, and the prudential regulation of firms not regulated by the PRA. Its rol The Financial Conduct Authority (FCA) is the largest financial regulator for all financial markets in the United Kingdom (UK).The UK regulator is responsible for the conduct of firms authorized under the Financial Services and Markets Act 2000. Moreover, the FCA is also responsible for the regulation of behavior in retail and wholesale financial markets, supervision of the trading infrastructure that supports those markets, and the prudential regulation of firms not regulated by the PRA. Its rol Read this Term) announced on Thursday that it is consulting on allowing the temporary use of some yen and sterling-denominated LIBOR interest rates.

The proposal came after the regulator earlier said that it will cease all pound sterling, euro, Swiss franc, Japanese yen as well as the one-week and two-month US dollar settings Libor Libor Libor stands for London Inter-bank offered rate. It is an industry-specific term which most of us would never have heard of until the "Libor scandal" became popularized in 2012. Libor is considered to be one of the most important interest rates in finance, upon which trillions of financial contracts rest. The Libor rate effects over $800,000,000,000,000 in financial deals. Banks simply cannot lend money to one another whenever they like as there is a system in place. Every day a group of leading Libor stands for London Inter-bank offered rate. It is an industry-specific term which most of us would never have heard of until the "Libor scandal" became popularized in 2012. Libor is considered to be one of the most important interest rates in finance, upon which trillions of financial contracts rest. The Libor rate effects over $800,000,000,000,000 in financial deals. Banks simply cannot lend money to one another whenever they like as there is a system in place. Every day a group of leading Read this Term panels after the end of 2021. However, it allowed the rest of the US dollar setting to be used till June end, 2023.

Now, the FCA is proposing the extension of the yen and sterling-denominated settings to avoid disruptions to contracts that cannot be quickly moved to alternative rates in time. But, it wants the extended LIBOR rates to be ‘synthetic’, meaning an alternative rate has been adopted in some form.

It proposes that the synthetic LIBOR be calculated using a forward-looking term version of the relevant risk-free rate: SONIA for sterling and TONA for yen.

“We would consult on using our new powers under the BMR to require the more widely used 1-month, 3-month and 6-month sterling, and Japanese yen LIBOR settings to be determined under a changed methodology (ie on a ‘synthetic’ basis) after end-2021,” the FCA stated.

“For the 3 Japanese yen LIBOR settings, based on information currently available to us, we intend to compel their publication for 1 year only until end-2022, after which they will cease.”

The Necessary Move

After the FCA’s earlier decision in March, regulators around the world started to push alternate rates for smooth transitioning from the controversial LIBOR. Regulators across the United States and Australia have welcomed the FCA’s decision to scrape LIBOR and pushed for alternative benchmarks.

“We remind market participants that any synthetic Libor will be time-limited and is intended as a safety net only for contracts that cannot transition,” FCA stressed. “We encourage market participants to continue active transition away from Libor wherever practicable and in line with relevant industry milestones, and not to delay their plans by waiting for a potential ‘synthetic’ solution.”