On 29 September 2021 the UK Financial Conduct Authority (“FCA”) published Consultation Paper CP21-29: Proposed decisions on the use of LIBOR (Articles 23C and 21A BMR), in which it set out its plans for the temporary publication of ‘synthetic' versions of LIBOR for a narrow range of outstanding sterling and yen contracts that cannot be switched in time for LIBOR cessation at the end of 2021.  LIBOR rates are currently published by ICE Benchmark Administration (“IBA”) and the FCA  announced that it is using its powers to compel IBA to continue publishing 1-, 3-, and 6-month GBP and JPY LIBOR rates in synthetic form from 1 January 2022 and for the duration of 2022. The synthetic methodology will be based on applicable term risk-free rates and is proposed to apply to financial contracts other than cleared derivatives.

CP21-29 follows the FCA's 20 May 2021 Consultation Paper CP21-15 on the policies that it would follow in exercising its new powers under the UK Benchmarks Regulation ((EU) 2016/1011), as amended by the  Financial Services Act 2021. With respect to which Feedback Statement FS21-10: FCA use of powers over the use of critical benchmarks also was published on 29 September 2021.

In addition to proposing synthetic GBP and JPY LIBOR rates for short-term use beginning 1 January 2022, CP 21-29 also proposes to prohibit continuing use after 31 December 2021 of overnight and 1-, 3-, 6-, and 12-month USD LIBOR except pursuant to five exceptions specified in section 1.17 of the consultation.

Consultation Paper CP21-29 closes for comments on 20 October 2021. The FCA will decide and specify before year-end which legacy contracts are permitted to use these synthetic LIBOR rates for at least a year. The FCA encouraged users of GBP and JPY LIBOR settings to take steps to ensure that they understand “how their contract terms interact with [FCA's] proposed decision.”

Originally Published 04 October 2021

Visit us at mayerbrown.com

Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2021. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.