Following on our post discussing the ARRC’s publication of their 2020 Key Objectives, we mentioned that ARRC panned to release a set of recommended best practices. As promised, the ARRC has published guidance for Best Practices for Completing the Transition from LIBOR (“Best Practices Guidance”), along with an accompanying ARRC fact sheet, which sets forth recommended timelines and intermediary steps market participants should take to facilitate a seamless transition away from USD LIBOR.
Notably, with only 19 months left until LIBOR’s potential discontinuation, the ARRC has adjusted its graphical timeline of key transition dates. The Best Practices Guidance also notes that in the absence of any statement before June 30, 2021 from the FCA, market participants should act on the assumption that LIBOR will end as of December 31, 2021.
The key guidance for all organizations are based on the following core recommendations:
- New USD LIBOR cash products must include ARRC-recommended (or equivalent) fallback language as soon as possible;
- Third party technology and operations vendors relevant to the transition should complete all necessary updates to support the use of SOFR by the end of 2020;
- New use of USD LIBOR should end, with specific timing dependent upon the circumstances for each cash product market; and
- With respect to contracts that designate a party to select a replacement rate at their discretion following a LIBOR transition event, the party should disclose the planned selection of replacement rate to the relevant parties at least 6 months before the date the replacement rate will become effective.
The Best Practices Guidance continues on in setting out specific timelines and recommendations for each cash product, including floating rate notes, business loans, consumer loans, securitizations, and derivatives.
Lastly, included at the end of the Best Practices Guidance, the ARRC has compiled and linked numerous helpful resources for fallback contract language, guidance, checklists, and FAQs.
“The LIBOR Transition” is a periodic series of updates discussing reference interbank offering rates, such as LIBOR, and the challenges involved in navigating a successful transition from their use as reference rates of choice in the market. Norton Rose Fulbright has assembled a group of its lawyers from around the globe to stay on top of these issues and assist clients in the transition to new reference rates. More information can be found on our Norton Rose Fulbright web site.