On 24 June 2021, the European Commission, the European Central Bank in its banking supervisory capacity (ECB Banking Supervision), the European Banking Authority and the European Securities and Markets Authority (together the authorities) issued a joint public statement strongly encouraging market participants to use the time remaining until the cessation or loss of representativeness of USD LIBOR, GBP LIBOR,JPY LIBOR, CHF LIBOR and EUR LIBOR to substantially reduce their exposure to these interest rates.
In order to achieve this result, the authorities strongly encourage the following action:
- Stop using the 35 LIBOR settings, including USD LIBOR, as a reference rate in new contracts as soon as practicable and in any event by 31 December 2021.
- Limit the use of any LIBOR setting published under a changed methodology (also known as “synthetic” LIBOR) only to contracts that are particularly difficult to amend ahead of LIBOR’s cessation (commonly referred to as “tough legacy”).
- Include robust fallback clauses nominating alternative rates in all contracts referencing LIBOR.