The Financial Markets Law Committee (FMLC) has today published a report entitled “LIBOR Transition – Issues of Legal Uncertainty”. The paper is intended to survey the uncertainties in the context of LIBOR transition and the steps being taken by authorities around the world so as to draw attention to any residual issues.
It first comprises a brief overview of the FMLC’s views as to the risks arising in respect of benchmark reform and, specifically, from the transition from LIBOR. It also sets out an analysis of uncertainties arising from the U.K.’s impending withdrawal from the E.U. and the complexities it adds to the adoption of a successor rate. Finally, the paper offers a survey of the specific ways in which it may be possible to mitigate the legal uncertainties in this context. These include:
- large-scale repapering
- preserving screen continuity
- a legislative solution
- extension of LIBOR beyond 2021 for legacy instruments
- mandating a specific successor rate within a set timeframe
- market action such as protocols and other contractual arrangements.
The report concludes that each possible mitigant gives rise to difficulties, but the possibility of amending the feeds on the Bloomberg and Reuters LIBOR01 pages so that a successor rate is displayed instead under the “LIBOR” rubric appears to offer the best prospect for avoiding disruption in the wholesale financial markets.