FCA extends expiration deadline of synthetic US dollar Libor to September 2024

Synthetic US dollar Libor will run until 30 September 2024, however, the UK regulator stresses that firms should continue to actively transition away from Libor.

The Financial Conduct Authority (FCA) has extended the expiration deadline of synthetic US dollar Libor to 30 September 2024, requiring ICE Benchmark Administration to continue the publication of the one-, three- and six-month US dollar Libor settings for a short period after 30 June 2023.

The UK regulator stated that it will review its decision in line with the requirements of the Benchmarks Regulation, however, it expects to follow the indicated direction and timeline unless unforeseeable and material events were to occur.

“Firms must therefore continue to actively transition contracts that reference US dollar Libor,” said the regulator in a statement.

“We continue to expect firms to take action and deliver demonstrable progress. Synthetic Libor is only a temporary bridge, and synthetic settings will not continue simply for the convenience of those who could have transitioned their contracts but have not done so.”

The FCA also announced that the use of one-, three- and six-month synthetic US dollar Libor settings in all legacy contracts, except cleared derivatives, will be permitted.

In addition, all new use of synthetic US dollar Libor will be prohibited under the Benchmark Regulation from 1 July 2023 after the US dollar LIBOR panel ends – overriding limited exemptions previously offered by the FCA.

Elsewhere, the one- and six-month synthetic sterling Libor settings were published for the last time on 31 March 2023, with the settings ceasing permanently.

The three-month synthetic sterling Libor setting is expected to cease at the end of March 2024, with the FCA stating that firms must continue their active transition efforts ahead of this date.

“Today’s extension for the usage of synthetic USD Libor by the FCA shows how significant the operational challenge has been for financial institutions trying to identify ways to convert their Libor linked derivatives trades,” said Erik Petri, head of triBalance at OSTTRA, speaking exclusively to The TRADE. 

“Firms must use this much needed breathing space to adopt a multilateral approach to portfolio compression and conversion to help them reduce USD Libor switchover risk, optimise capital, and enhance operational efficiency ahead of this revised deadline.”