Proposed NY Law Targets LIBOR Fallback Problems
The end of 2021 will mark a milestone in global financial markets when regulators phase out the "LIBOR benchmark" that underpins much of the global financial system.
The London Interbank Offered Rate, more commonly known as LIBOR, is one of the most significant global benchmarks for calculating interest. Yet in 2017, the Financial Conduct Authority (FCA) called for LIBOR to be phased out by 2021 and replaced by alternative, risk-free rates. The proposed alternatives to LIBOR across different currencies include the Sterling Overnight Interbank Average (SONIA), Secured Overnight Financing Rate (SOFR), Tokyo Overnight Average rate (TONA), Euro Short-Term Rate (€STR) and Swiss Average Rate Overnight (SARON). Only the Euro Interbank Offered Rate (EURIBOR), the more commonly used euro benchmark, is expected to continue.
With LIBOR being widely used in Debt Finance, Capital Markets, Derivatives, Asset Finance, Project Development and Finance contracts—and in many other contracts—its discontinuation is considered one of the biggest challenges to ever affect the global financial markets. Market participants, including lenders, borrowers and corporates across the developed and emerging markets, need to be aware of this change, including the regulatory complexities considered by our Financial Services Regulatory group; and the potential for Commercial Litigation and Antitrust/Competition related issues. With trillions of dollars worth of contracts needing amending, our experienced teams of lawyers can guide you through the complexities of this transition process to reach a successful conclusion.
The disruption to capital markets caused by the COVID-19 pandemic has not shifted the overall timeline of regulators and industry bodies for the replacement of US dollar LIBOR with SOFR by the end of 2021
LIBOR, one of the most significant global benchmarks for calculating interest, is to be phased out by 2021 and replaced by alternative benchmarks in the form of risk-free rates. With LIBOR widely used in the loan, bond and derivatives markets, and in many long-term contracts, the impact of this change cannot be underestimated. The transition to the new replacement rates will not be an easy process, but it is a necessary one, and market participants must start now.
The end of 2021 will mark a milestone in global financial markets when regulators, in effect, phase out the "LIBOR benchmark" that underpins much of the global financial system
Costs associated with LIBOR's discontinuation could tip the scale in favour of fixed-rate loans in real estate finance