FCA to Permanently Cease Synthetic Sterling LIBOR on March 2023

The Financial Conduct Authority (FCA) announced its decision on Thursday to permanently cease the publication of 1 and 6-month synthetic sterling LIBOR settings on 31 March 2023.

“We have no intention to use our powers to compel IBA to continue to publish the 1- and 6-month synthetic sterling 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 settings,” the FCA stated.

The decision came after the financial market regulators released a consultation paper last June seeking industry-wide feedback on its intention to bring the permanent cessation of the synthetic settings.

“Market participants need to ensure they are prepared for the permanent cessation of 1- and 6-month synthetic sterling LIBOR on 31 March 2023,” the regulator added. However, the deadline for permanently ceasing synthetic yen LIBOR has been previously set for the end of 2022.

End of a Controversial Benchmark

The reputation of LIBOR, which measures the cost of unsecured borrowing between banks, was tainted by the manipulation of its rates done by several banks. Many traders were charged and penalized for their role in this mass forex Forex Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Read this Term market rigging.

The British regulator, which oversees the global benchmark, scraped the usage of the controversial LIBOR rates in 2021. Though the publication of most of the LIBOR rates for foreign currencies ceased on 31 December 2021, only some US dollar settings will continue till 30 June 2023.

The FCA came up with synthetic LIBOR last November for two currencies, sterling and yen, as a temporary measure. These synthetic LIBOR settings are calculated using a forward-looking term version of the relevant risk-free rate: SONIA for sterling and TONA for yen.

“We previously required ICE Benchmark Administration (IBA), the administrator of LIBOR, to continue publication of the 1-, 3- and 6-month sterling and yen LIBOR settings for an additional year after end-2021, using a synthetic methodology,” the FCA stated.

“This was to help mitigate the risk of widespread disruption to legacy LIBOR contracts which had not transitioned by end-2021 when the sterling and yen LIBOR panels ended.”