Japan Financial Services Agency: Preparation For Permanent Cessation Of LIBOR

The publication of London Interbank Offered Rate (LIBOR) based on the methodology referencing rates provided by panel banks (panel-based LIBOR) was ceased at the end of December 2021 except for certain USD LIBOR settings.(note) ICE Benchmark Administration (IBA) has announced that it intends to cease the publication of remaining tenors of USD LIBOR at the end of June 2023.

While LIBOR is mainly referenced in derivative contracts such as interest rate swaps, it is also quoted in a significant number of cash products including corporate loans and bonds. Although the transition away from the panel-based LIBOR rates for which the publication was ceased at end-December 2021 is almost complete, there is still the possibility of disruption to users if USD LIBOR for which the publication will be ceased at end-June 2023 were ceased without sufficient preparation.

Through close cooperation with the Bank of Japan and other relevant institutions, the Financial Services Agency of Japan (JFSA) will publish or provide links to related materials to help market participants, including financial institutions and non-financial corporate and institutional investors　better understand the necessity of taking actions for a smooth transition away from LIBOR and also support market-led initiatives.

(note) From January 2022, synthetic LIBOR calculated using market data for certain tenors of GBP LIBOR and JPY LIBOR (1-, 3-, and 6-month) , which is limited to use for existing contracts that cannot feasibly be transitioned (i.e. so-called tough legacy contracts), has been released. Please refer to the following link for the slide of details on the timing of cessation of publications by currency and tenor, and the announcement status of synthetic LIBOR etc.

Summary of the cessation of LIBOR publication

－ Information will be updated accordingly －

LIBOR Transition based on the Final Report on the Results of the Public Consultation on the Treatment of Tough Legacy Contracts in Japan published by the Cross-Industry Committee on Japanese Yen Interest Rate Benchmarks

In Japan, the Cross-Industry Committee on Japanese Yen Interest Rate Benchmarks has discussed the way to use synthetic yen LIBOR on the assumption that it will be published, and published the Final Report on the Results of the Public Consultation on the Treatment of Tough Legacy Contracts in Japan on November 19, 2021.

In consideration of the above report, the Financial Services Agency (FSA) and Bank of Japan (BOJ) have sent a joint letter to financial institutions through relevant associations.

LIBOR Transition based on the Final Report on the Results of the Public Consultation on the Treatment of Tough Legacy Contracts in Japan published by the Cross-Industry Committee on Japanese Yen Interest Rate Benchmarks (JFSA and BOJ) - November 25, 2021

Response to the announcement on the end date of LIBOR panel publication and the announcement on the intention to consult on the publication of synthetic yen LIBOR

On March 5, 2021, ICE Benchmark Administration (IBA) has announced that it intends to cease the publication of LIBOR based on the current methodology referencing rates provided by panel banks (panel-based LIBOR) immediately after end-2021 except for certain US dollar LIBOR settings. In addition, the UK Financial Conduct Authority (FCA) has announced on the same day that it will consult on the use of the proposed powers under the UK Financial Services Bill to require IBA to publish the 1-month, 3-month and 6-month JPY LIBOR settings on a synthetic basis (synthetic LIBOR) for one additional year after end-2021.

In consideration of the above announcements, the Financial Services Agency (FSA) and Bank of Japan (BOJ) have sent a joint letter to financial institutions through relevant trade associations, which presents the expectation of the FSA and BOJ on transition away from panel-based LIBOR and on synthetic yen LIBOR.

Response to the announcement on the end date of LIBOR panel publication and the announcement on the intention to consult on the publication of synthetic yen LIBOR (JFSA and Bank of Japan) - March 8, 2021 (Updated: March 16, 2021)

Letters to the CEOs of Major Financial Institutions regarding LIBOR Transition

Financial Services Agency of Japan, together with the Bank of Japan, has written to the CEOs of major financial institutions regarding LIBOR transition. The purpose of sending the letters is to urge financial institutions to take actions for permanent cessation of LIBOR and to request submission of relevant materials to review the progress of preparedness in individual firms.
As mentioned above, the letters have been sent to some financial institutions. However, we will monitor preparedness of other financial institutions based on the contents of the letters.
Any financial institutions using LIBOR are expected to accelerate their actions by responsible and active involvement of management officials with due consideration for description of the letters.

“Taking Actions for Permanent Cessation of LIBOR” (JFSA and Bank of Japan) – June 1, 2020

Joint Survey on the Use of LIBOR (JFSA and Bank of Japan)

The JFSA, together with the Bank of Japan, conducted a joint survey of financial institutions, including banks, securities companies, and insurance companies, regarding their use of LIBOR.
The main aim of this survey is to ascertain their quantitative LIBOR exposures in preparation for the permanent cessation of LIBOR.

Key Results of the Survey on the Use of LIBOR (JFSA and Bank of Japan) - March 24, 2023
Key Results of the Survey on the Use of LIBOR (JFSA and Bank of Japan) - March 31, 2022
Key Results of the Survey on the Use of LIBOR (JFSA and Bank of Japan) - May 19, 2021

Summary of Survey Results on the Use of LIBOR and Main Actions Needed (JFSA and Bank of Japan)
- March 13, 2020

Brief Survey on the Use of JPY LIBOR (JFSA and Bank of Japan)

The JFSA, together with the Bank of Japan, conducted a brief survey on the use of JPY LIBOR.
This is a brief survey conducted on a smaller number of financial institutions focusing on fewer survey items than the previous surveys on the use of LIBOR, in order to swiftly grasp the number of financial products and transactions referencing JPY LIBOR, as well as the progress with the transition away from JPY LIBOR as of end-September 2021.
Through this survey, it is expected that preparations for the smooth transition are promoted further at each financial institution.

Key Results of the Brief Survey on the Use of JPY LIBOR (JFSA and Bank of Japan) - November 1, 2021