In 2017, in response to the decline in eligible term borrowing transactions underlying the London Interbank Offered Rate (LIBOR) and with little prospect of these markets becoming substantially more active in the near future, the UK Financial Conduct Authority announced that it no longer would compel panel banks to quote LIBOR after December 31, 2021.
The transition from LIBOR to alternative benchmark interest reference rates is shaping up to be one of the most fundamental changes to the financial services industry in recent times. LIBOR is used in more than $300 trillion of mortgages, commercial loans, bonds and derivatives, with interest rate derivatives accounting for nearly 90 percent of the outstanding gross notional value of financial products that reference LIBOR.
The problem is global and complex-involving regulators and trade organizations across dozens of countries and currencies-and time is running out. Affected banks, insurers and other financial market participants need to act quickly, and effectively, to avoid adverse consequences. Adding to the complexity is the material distraction of and diversion of resources due to the COVID-19 pandemic.
With regulators standing firm on the deadline, and with new guidance emerging almost daily, organizations should expect to transition away from LIBOR by the end of 2021 and have ample resources to do so.
Through our global presence, deep knowledge of the affected markets and products, participation in many trade and industry groups and considerable experience in using a variety of technology solutions (including artificial intelligence and other technology-assisted review tools), Mayer Brown is uniquely positioned to advise financial institutions and other affected market participants on how to navigate this complex problem. Our IBOR Transition Task Force, composed of nearly 100 partners globally, is perhaps the best reflection of our strength and depth.
Also, we have created two resources providing comprehensive information on the background of LIBOR and other IBORs, the latest market developments and our thought leadership:
- IBOR Transition Digest: A compendium of global regulatory and market news as well as insights on the complex issues confronting financial market participants as they plan to transition from LIBOR and its variants to replacement benchmark interest rates.
- IBOR Transition Webinar Series: Detailed discussion and insight-in a digestible format- on a range of topics from setting and executing an effective IBOR Transition strategy to assessing the impact of IBOR issues on specific financial products.
In addition, we are collaborating with Morae Global Corporation, a leading provider of legal and compliance technology solutions, to assist clients as they embark on this transition. Our combined legal and technology know-how provides a "one-stop shop" for organizations preparing for the discontinuance of LIBOR.
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