Significant efforts are under way globally to transition financial markets away from reliance on existing benchmarks for key inter-bank offered rates (IBORs) – such as the world's most widely used benchmark, the London Inter-Bank Offered Rate (LIBOR) – to robust alternative, nearly risk-free reference rates (RFRs).
The transition to RFRs will have far-reaching effects on documentation used day-to-day in international and domestic financial markets, including bonds, loans, derivatives and even some residential mortgages.
Our expertise
Regulatory authorities around the world are urging market participants to develop, and transition to the use of, robust alternative RFRs. In response, working groups have been set up in a number of countries to implement a market-led transition away from traditional IBORs. For example, in the UK, the Working Group on Sterling Risk-Free Reference Rates was established in 2015 by the Bank of England to recommend a Sterling RFR and promote its adoption as an alternative to Sterling LIBOR. In April 2017, it recommended the SONIA benchmark as its preferred RFR and since then it has been focused on developing a term SONIA rate and implementing the transition to using SONIA across cash and derivative markets. In US dollar markets, the Alternative Reference Rates Committee (ARRC), established in 2014 and sponsored by the Board of Governors of the Federal Reserve System and the Federal Reserve Bank of New York, is performing a similar function.
Bond, loan and derivative markets are developing products based on these RFRs and adopting new fall-backs which anticipate the transition away from the traditional IBORs. Ashurst's global finance practice is fully involved in these developments across multiple jurisdictions and product areas, both acting for clients and participating in industry groups. However, much work still remains to be done to provide a framework for the successful transition away from traditional IBORs across all currencies, including developing new term rates based on generally overnight backward-looking RFRs, building market infrastructure, amending legacy contracts and finalising new market-standard currency-specific interest-rate determination and fall-back provisions. Underlining the gravity of this topic, the Bank of England's Financial Policy Committee (FPC) noted in its June 2018 Financial Stability Report that "[continued] reliance of financial markets on LIBOR poses a risk to financial stability that can be reduced only through a transition to alternative rates."
Our team of finance lawyers based in all the major financial centres around the world are on hand to advise you on all aspects of this changing landscape.
For more information on the Benchmark Regulation, please also see our Benchmarks Regulation (BMR) portal.
Ashurst Advance
The transition to RFRs from traditional IBORs will require amendments to legacy contracts across a variety of products and asset classes on a large scale. We understand that such large-scale documentation projects place unique demands on legal resources and strain budgets. With that in mind, we have developed Ashurst Advance: a single, global, integrated delivery platform, which provides an innovative blend of expertise, flexible resourcing, leading technology solutions and project management capability to plan, manage and execute such projects. We have planned how to use this platform in the transition to RFRs from traditional IBORs and are able to design a process to fit your specific requirements.
