The UK's Financial Conduct Authority (FCA) has announced that it will give banks an extra 15 months for the last time to stop using a "synthetic" version of US dollar Libor.

The UK's Financial markets regulator has asked the ICE Benchmark Administration LIMITED(IBA) to continue publishing "synthetic" dollar LIBOR Settings for one and six months until September 2024, extending the period to the original end date of June 2023. The decision was made in response to feedback from the industry that some US dollar cash contracts, particularly those outside the US, would benefit from continued publication.

Usd Libor was due to stop in less than three months, but the UK regulator used its powers under the Benchmarking Regulations (BMR) to temporarily extend publication under the unrepresentative synthesis method to assist in the transition of legacy issues.

However, the FCA confirmed that it has no intention of using its powers to force continued publication beyond this date, so these Settings will be permanently discontinued immediately after final publication at the end of September 2024.

The FCA and the Bank of England have been taking steps to facilitate the shift from LIBOR to SONIA. Over the past few years, they have actively provided guidance to lenders, borrowers, and investors who are revising their documents to reference SONIA.

Still, the transition to US dollar LIBOR remains critical globally, including in the UK where many firms are active in the US dollar rates market.

LIBOR, which underpins more than $300 trillion in derivatives and other instruments, will be replaced globally by the Bank of England's SONIA rate for sterling-denominated swaps, loans and futures.

The global regulator urged market participants to accelerate the shift to Sonia overnight rates and reference Libor in the fourth quarter before halting the issuance of cash products.

The move to end the use of dollar LIBOR in new contracts has been supported by regulators in the United States and around the world.

As the end of LIBOR draws closer, the FCA and the Bank of England encourage market participants to actively transition out of reference to the LIBOR rate in their sterling and US dollar derivatives.

The FCA noted that overnight SONIA, which replaces interbank quoted rates, is now fully embedded across the forex market. The successful CCP conversion process has seen some of the largest single-day financial contract corrections, with over £13 trillion of Libor-referenced contracts converted to SONIA.

This shift is expected to improve the liquidity of these products, thereby helping the relevant vendors achieve the key milestone of the Task Force to stop using Libor-linked derivatives.