LIBOR Transition

What is LIBOR?

LIBOR is an acronym for the London Interbank Offered Rate which is a measure of the average rate at which banks are willing to borrow wholesale unsecured funds. According to the Bank of England it is a major interest rate benchmark which underpins c.$300tn ($30tn in GBP markets) of financial contracts, including derivatives, bonds and loans.

What has changed?

The FCA announced in July 2017 that LIBOR would be phased out by the end of 2021.

How would the phasing out of LIBOR impact your business?

Buy-side firms such as asset managers and hedge funds are particularly impacted by the LIBOR transition as many of their products, such as interest rate derivatives, FRNs, ABS and loans, together with their custody and collateral arrangements reference LIBOR.

Although the contracts governing these products and arrangements may contain fallback provisions for LIBOR, these fallback provisions were designed for short term disruptions not the cessation of LIBOR, hence they are either economically inefficient or operationally untenable. As a result, any of your firm’s contracts which reference LIBOR will have to be amended to include either more robust fallbacks or an alternative rate.

How I can help?

I can provide legal advice and regulatory support to:

  • identify and systematically review your affected agreements in order to highlight the relevant sections referencing LIBOR;
  • advise on the current market consensus with regard to the relevant LIBOR replacement rate for the relevant product or arrangement;
  • advise on the methodology of the new reference rates so you can identify and determine the economic effects on your business;
  • draft amendments or new agreements or where applicable, review counterparty communications and proposed amendments;
  • provide tracking tools and a record keeping for all reviewed and amended documents.

The above will all be done in line with your regulatory obligations to:

    • comply with your governance and oversight responsibility, and
    • comply with the overarching doctrine of treating your customers fairly.

For more information, please contact Aneil Ramroop.

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