BOE says artificial sterling libor could continue for a decade

[LONDON] UK regulators have raised the prospect that an artificial sterling Libor number could be published for up to a decade after the controversial benchmark is retired at the end of this year.

The Financial Conduct Authority will shortly start consulting the industry on plans for a "synthetic" London interbank offered rate, designed to help troublesome financial contracts that are incapable of transitioning to replacement benchmarks. The Bank of England said Friday that this the FCA's power to do this will need to be reviewed annually for a maximum of 10 years.

Most Libors are due to expire at the end of 2021, but regulators are concerned that bonds and securitisations risk descending into a legal limbo because they lack provisions necessary to switch to alternatives and are too complicated to renegotiate. To prevent a chaotic transition to the new benchmarks, the plan is to publish an artificial Libor number for some contracts, created without using banks' trading data.

The FCA will consult on a similar arrangement in Japan, though it intends for synthetic yen Libor to be published for only a year.

The US is planning to avoid synthetic Libor and is pursuing legislation in New York instead to smooth the transition, with the Federal Reserve calling for similar legislation at a national level. The BOE said the approach for dollar Libor tenors ending in mid-2023 would be kept under review.

BLOOMBERG