The time for LIBOR fallback planning is now

By the end of 2021, LIBOR – the London Interbank Offered Rate – will no longer be required to be calculated. The most widely used interest rate in the world, LIBOR is the benchmark rate embedded in a wide range of financial instruments and transactions worldwide – from corporate loans and bonds to derivatives and futures to mortgages and other financial products. As a result, the global financial markets are experiencing a seismic shift that could have a significant impact on many lenders, borrowers and other participants in the capital markets. Calculated in euros, U.S. dollars, British pounds sterling, Japanese yen and Swiss francs, LIBOR and analogous reference rates are used to determine interest for an estimated US$370 trillion in financial instruments.[1]

The elimination of LIBOR presents a global challenge as financial markets participants seek to replace LIBOR and analogous rates with more robust and reliable interest rate benchmarks. Reform efforts are progressing at different speeds in different jurisdictions. A disorderly transition has the potential to be disruptive for banks and their clients. LIBOR affects a large number of derivatives and credit products used by banks, and the conversion to new benchmark rates – known as “LIBOR fallback planning” – is a significant and critical undertaking.

Assess, amend, implement

To avoid major disruption, banks must engage in advanced LIBOR fallback planning now. Global regulators have suggested that financial institutions aren’t doing enough and aren’t acting quickly enough. A strategic starting point is to gain a thorough understanding of

  • the impact of the LIBOR fallback transition across the enterprise, including assessing all affected products and instruments (e.g., loans, structured products, short-term money market products, bonds and derivatives)
  • the due diligence necessary to identify LIBOR-related amendments that need to be applied to various financial instruments, including whether affected contracts provide for a fallback rate
  • the tax implications of LIBOR-related amendments
  • the impact of a new benchmarking rate on treasury models and processes at an institutional level, including on balance sheets and risk exposures, accounting policies and processes, reassessments of tax assets and liabilities, transfer pricing and funding practices, and loan and debt issuance programs
  • the litigation risk associated with implementation of LIBOR fallback planning

Once an assessment has been completed, this insight can be leveraged to develop a plan that is comprehensive and cost-effective and that effectively manages legal risk for the enterprise.

How Osler can help

As the only Canadian law firm that is a member of the ISDA Americas and Europe Benchmarking Working Group, Osler is particularly well-positioned to provide insight and advice to market participants regarding LIBOR fallback planning. Banks and other financial market participants turn to Osler for assistance with enterprise-wide LIBOR fallback risk assessment, planning and implementation solutions.

As the LIBOR discontinuation date draws closer, we will continue to update this page and the resources listed below to provide the most up-to-date information about this significant milestone.

Helpful resources

Benchmark Fallbacks resources from the ISDA

The International Swaps and Derivatives Association provides a series of pages devoted to issues related to benchmark fallbacks, from timelines and consultations to the organization’s response to proposed reform in various jurisdictions around the world. Read more


Alternative Reference Rates Committee

The Alternative Reference Rates Committee is a group of private-market participants convened by the Federal Reserve Board and the New York Fed to help ensure a successful transition from the USD LIBOR to its recommended alternative, the Secured Overnight Financing Rate (SOFR). Read more


The Official Sector Steering Group (OSSG) of the Financial Stability Board

The Financial Stability Board was tasked with undertaking a fundamental review of major interest rate benchmarks and to develop proposals for reform. It established the Official Sector Steering Group in July 2013 and published its recommendations in July 2014. Read more


Bank of Canada Canadian Alternative Reference Rate Working Group

The Canadian Alternative Reference Rate Working Group was created with a mandate to identify and develop a new Canadian dollar term risk-free rate benchmark. Read more


International Organization of Securities Commissions (IOSCO) Principles for Financial Benchmarks

The Board Level Task Force on Financial Market Benchmarks of the International Organization of Securities Commissions (IOSCO) published its final report that sets out IOSCO’s final Principles on Financial Benchmarks. Read more


ICMA Benchmark Reform

The International Capital Market Association has been consulting with regulators and members on the issue of benchmark reform for several years and is currently focused on developing Risk-Free Reference Rates in response to the Financial Stability Board’s recommendations. Read more


Loan Market Association LIBOR microsite

The Loan Market Association (LMA) is working with the market, other trade associations and the regulators on the LIBOR transition. To keep market participants up to date, LMA has created a LIBOR microsite for its members. Read more

Recent articles

BoE Notice on Eligibility of LIBOR-Linked Collateral for Use in SMF

Moody's Analytics - May 7, 2020

According to a Market Notice issued by BoE on its risk management approach to collarateral referencing LIBOR for use in Sterling Monetary Framework (SMF), all LIBOR-linked collateral will be ineligible for use in SMF from December 31, 2021. Read more


ISDA outlines results of consultation on pre-cessation LIBOR fallbacks 

Moody's Analytics - April 15, 2020

ISDA announced preliminary results of the consulation on implementation of pre-cessation fallbacks for derivatives referenced to LIBOR. While the results are subject to further analysis, ISDA expects to move forward on the basis that pre-cessation fallbacks based on a "non-representativeness" determination and permanent cessation fallbacks would apply to all new and legacy derivatives referencing LIBOR that incorporate the amended 2006 ISDA Definitions. Read more


ISDA announces preliminary results of consultation on pre-cessation fallbacks for LIBOR

ISDA - April 15, 2020

The initial results of ISDA's consultation on the implementation of pre-cessation fallbacks for derivatives referenced to LIBOR indicate support for including both pre-cessation and permanent cessation fallbacks as standard language in the amended 2006 ISDA Definitions for LIBOR and in a single protocol for including the updated definitions in legacy trades. Read more


ISDA paper outlines developments on risk-free rate adoption in 2020

Moody's Analytics - Feb 12, 2020

ISDA published a research paper that examines several major upcoming developments on the adoption of risk-free rates in 2020. This article highlights the key developments outlined in the research paper. Read more


ISDA/SIFMA AMG Benchmark Strategies Forum 

ISDA - Feb 12, 2020

This transcript of the Benchmark Strategies Forum discusses how there is no guarantee that LIBOR will be published after the end of 2021, so this year will be the one that counts when it comes to preparing for the shift to risk-free rates. Read more


ISDA to re-consult on pre-cessation fallbacks

ISDA - Feb 5, 2020

ISDA has announced that it will re-consult on how to implement pre-cessation fallbacks. Based on the results of that consultation, ISDA will move quickly to deliver the appropriate, industry endorsed fallback solution later this year. Read more


Statement on communication and outreach to inform relevant stakeholders regarding benchmarks transition

The Board of the International Organization of Securities Commissions – July 31, 2019

This statement sets out matters for market participants to consider if they have exposure to LIBOR, particularly USD LIBOR, in light of its expected cessation after the end of 2021 and USD LIBOR’s widespread global use. Read more


ISDA publishes preliminary results of supplemental benchmark fallbacks consultation

International Swaps and Derivatives Association, Inc. – July 30, 2019

The ISDA published a statement summarizing the preliminary results of a supplemental consultation on adjustments that would apply to fallback rates in the event certain interbank offered rates are permanently discontinued. A supplemental consultation was launched in May, which set out options for spread and term adjustments if fallbacks are triggered for derivatives referencing US dollar LIBOR, Hong Kong’s HIBOR and Canada’s CDOR. Read more


Waiting for the sun to set on LIBOR or being proactive? See regulation as an opportunity for change

Finextra – July 29, 2019

This blog post discusses steps market participants can take to plan for the sunset of LIBOR. Read more


Transitioning From LIBOR

Commercial Property​ Executive – July 24, 2019

According to author Jamie Woodwell, uncertainty surrounds strategies for managing the transition away from LIBOR, as many firms wait on the sidelines for others to take the lead. Read more


Legal ease: Farewell to LIBOR

Funds Europe – July 22, 2019

This article discusses considerations that funds should keep in mind in their approach on how to deal with the LIBOR transition. Read more


SEC statement highlights risks to consider during LIBOR transition

Moody’s Analytics – July 12, 2019

This article discusses a statement issued by the Securities and Exchange Commission, which encourages market participants to proactively manage their transition away from LIBOR and outlines several potential areas that may warrant increased attention during the transition. Read more

 

SEC advises market participants on move away from LIBOR

Financial Regulation News – July 16, 2019

This article explores how the Securities and Exchange Commission is encouraging market participants to transition away from using LIBOR as a reference for setting the interest rates on loans. Read more


Fed tells financial firms to stop dawdling in their move away from LIBOR  

FinanceFeeds – July 16, 2019

As regulators look to coerce the banks into doing away with LIBOR before they have to by law, this article explores whether this could be the age of the non-bank market maker and fully self-sufficient OTC derivatives industry. Read more


SEC urges market participants to prepare for LIBOR transition

ABA Banking Journal – July 15, 2019

This article discusses the Securities and Exchange Commission’s statement that warns of potential consequences for financial markets if LIBOR is discontinued. Read more


901 Days – Remarks by John C. Williams, President and Chief Executive Officer, New York Fed

Federal Reserve Bank of New York – July 15, 2019

This speech by John C. Williams, given at the Securities Industry and Financial Markets Association, provides his thoughts on why replacing LIBOR is so critical and the progress that has been made to move toward a more sound reference rates regime. Read more


Fed-backed group outlines framework on SOFR-linked mortgages

Nasdaq – July 11, 2019

This article discusses a proposal by a group backed by the Federal Reserve and other U.S. government agencies on how the mortgage industry would adopt a new reference rate for loans. Read more


Firms that delay the switch out of LIBOR face enforcement action, rising costs

S&P Global Market Intelligence – June 25, 2019

This article explains that while regulators expect LIBOR to disappear by the end of 2021, the longer firms delay switching to alternative rates, the more costly it could be for them. Read more


Firms need to do more to prepare for LIBOR transition

The Global Treasurer – June 12, 2019

This article discusses why the Deputy Governor for Markets & Banking at the Bank of England believes that organizations need to do more to prepare for the switch from LIBOR to a Bank of England alternative by the end of 2021. Read more


LIBOR: Why 2022 is coming faster than you think

Association for Financial Professionals – June 11, 2019

This article examines a meeting at the U.S. Chamber of Commerce that discussed how while corporate treasury departments have time to prepare for the transition away from LIBOR, 2022 is fast approaching. Read more


Fed warns that the end of LIBOR really is coming, so be prepared

BNN Bloomberg – June 3, 2019

LIBOR is coming to an end and the Federal Reserve says markets need to take that “seriously,” according to this article. Read more


LIBOR’s end forces global banks to juggle multiple replacements

Bloomberg – June 2, 2019

This article offers an overview of the ongoing transition away from LIBOR and the varying levels of progress being made by different jurisdictions around the world. Read more


LIBOR transition panel issues fallback language for bilateral business loans, securitizations

ABA Banking Journal – May 31, 2019

This article discusses the Alternative Rates Committee issuing its fallback language recommendations for bilateral business loans and securitizations that reference the U.S. dollar LIBOR. Read more


Another step to benchmark fallbacks

International Swaps and Derivatives Association – May 29, 2019

This article contains commentary from ISDA chief executive officer Scott O’Malia on important OTC derivatives issues. Read more

Key Contacts

Lisa Mantello

Lisa Mantello
Partner, Banking and Financial Services
lmantello@osler.com
tel: 416.862.6790

Timothy Hughes

Timothy Hughes
Partner, Taxation
thughes@osler.com
tel: 416.862.6573

Allan Coleman

Allan Coleman
Partner, Litigation
acoleman@osler.com
tel: 416.862.4941

Larry Lowenstein

Larry Lowenstein
Partner, Litigation
llowenstein@osler.com
tel: 416.862.6454

Robert Carson

Robert Carson
Partner, Litigation
rcarson@osler.com
tel: 416.862.4235

Osler leverages many areas of expertise in LIBOR fallback planning: