UK Working Group Publishes Paper on Identifying Tough Legacy Issues in the LIBOR Transition

The Working Group on Sterling Risk-Free Reference Rates has published a paper on the identification of tough legacy issues. The paper concerns those instances where a contract cannot be amended to reference a suitable alternative rate to LIBOR or use a robust fallback so that the contract moves to a suitable alternative rate on the occurrence of certain events. The Working Group is advocating for the U.K. Government to consider legislation to address tough legacy exposures in contracts governed by English law that reference LIBOR (in sterling or other LIBOR currencies) that remain in operation when LIBOR is proposed to be phased out at the end of 2021. The recommendation is similar to the proposed solution of the Alternative Reference Rates Committee under New York law. The Group advises that other steps should also be taken, including the methodology for LIBOR being modified by either an administrator or official intervention. The latter option of official intervention is controversial, in that the benchmark administrator and its committees would lose control over how the benchmark operates, yet remain liable to regulators for its operation and face other legal risks resulting from external decisions. In the Group's view, the only path for certainty over contracts is for market participants to proactively transition away from LIBOR before the end of 2021.

The paper also sets out the Working Group's analysis of whether tough legacy issues exist for certain types of contracts, covering derivatives, bonds, mortgages and loans.

View the RFRWG paper on tough legacy issues.

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