Synthetic LIBOR

Interest rates - reference rates - LIBOR transition - GBP & JPY - Financial Conduct Authority.

Synthetic LIBOR is a temporary and strictly limited successor to LIBOR for sterling (GBP) and Japanese Yen (JPY), after the cessation of the previous LIBOR panels at the end of 2021.

New use of synthetic LIBOR is banned

"The 1, 3 and 6 month sterling and Japanese yen LIBOR settings are Article 23A benchmarks, meaning they are now permanently unrepresentative of the underlying market they seek to measure. This is because the panel of banks, which used to provide submissions to create these rates, has now ended.

From today [4 January 2022], these 6 LIBOR settings will be calculated in a way that does not rely on submissions from panel banks. Market participants generally call this 'synthetic' LIBOR...

We have also published a Notice allowing use of these synthetic rates in all legacy contracts except cleared derivatives...

Synthetic yen LIBOR will cease at the end of 2022.

Availability of synthetic sterling LIBOR is not guaranteed beyond end-2022, so firms’ efforts to transition away from it should continue.

We also remind market participants that new use of synthetic LIBOR is banned."

Changes to LIBOR as of end-2021 - Financial Conduct Authority.

Key points for corporates from Edwin Schooling Latter's speech (FCA) - synthetic LIBOR

"While the FCA is also taking steps to provide a time limited safety net to help contracts that can’t be transitioned, this does not remove the need for firms to act.

Certain, yet to be determined ‘tough legacy’ contracts will be allowed to use a synthetic LIBOR rate based on forward-looking term RFRs, so SONIA for sterling, plus the relevant ISDA spread adjustment."

ACT blog - Sarah Boyce - 15 July 2021.

See also

• Article 23 benchmark
• Benchmarks Regulation
• Clear
• Derivative instrument
• Financial Conduct Authority (FCA)
• ISDA spread adjustment
• Legacy
• LIBOR
• Panel
• Panel bank
• Risk-free rates (RFR)
• Setting
• SOFR
• SONIA
• Synthetic
• Tough legacy
• Transition
• Transition risk

External links

• Changes to LIBOR as of end-2021 - Financial Conduct Authority
• FCA consults on proposed decision to require synthetic LIBOR for 6 sterling and Japanese yen settings