LIBOR Update A Temporary Reprieve for USD LIBOR

By Oliver Irwin , Partner and Bagya Nambron , Senior Associate

Often referred to as “ the world ’ s most important number ”, the London Interbank Offered Rate ( LIBOR ) is used as the reference interest rate for a range of commercial and financial contracts worth hundreds of trillions of dollars globally . As market commentators and regulators have been highlighting for many months , the scale and complexity of the LIBOR replacement exercise requires all market participants to prepare for a coordinated transition as soon as possible .

As we enter into the final month of 2020 , one of the strangest and most challenging years in recent history , the issue of the impending LIBOR transition remains live and at the forefront of the minds of many market participants . On 30 November 2020 the Financial Conduct Authority ( FCA ) regulated and authorised administrator of LIBOR , the ICE Benchmark Administration ( IBA ), announced that it has launched consultations on its intention to cease publication of :

• overnight and 1 , 3 , 6 and 12 month USD LIBOR settings immediately following the LIBOR publication on 30 June 2023 ( as opposed to 31 December 2021 ); and

• 1 week and 2 month USD LIBOR settings immediately following the LIBOR publication on 31 December 2021 .

This announcement was made based on feedback and information IBA received from its LIBOR panel banks and discussions with the FCA and other official sector bodies . The consultation period will cease at the end of January 2021 .

The IBA had previously announced on 18 November 2020 that it would also consult on its intention to cease the publication of all GBP , EUR , CHF and JPY LIBOR settings immediately following the LIBOR publication on 31 December 2021 .

The FCA responded to the IBA ’ s latest announcement with a statement that it welcomed and supported the extension of the 31 December 2021 deadline to 30 June 2023 , noting that this extension “ will incentivise swift transition , while allowing time to address a significant proportion of the legacy contracts that reference US $ LIBOR ”.

Notwithstanding this extension the FCA ’ s guidance to market participants remains clear , which is that parties to LIBOR contracts should continue to work to convert these contracts or adopt robust fallbacks ( the FCA cited the IBOR Fallbacks Protocol produced by the International Swaps and Derivatives Association ( ISDA ) as an example of a robust fallback ).