LIBOR transition—legislative solutions to tough legacy contracts

The following Banking & Finance practice note provides comprehensive and up to date legal information covering:

  • LIBOR transition—legislative solutions to tough legacy contracts
  • What are tough legacy contracts and why are they a problem?
  • What is meant by ‘tough legacy contracts’?
  • Why are tough legacy contracts a problem?
  • What is the legislative solution put forward in the UK?
  • What are the measures in summary?
  • What are the measures in more detail?
  • What is the current status of the consultations and policy statements?
  • How does the FCA intend to exercise its powers to require the administrator to change its methodology, rules or code of conduct (Article 23D)?
  • What does this mean in practice for LIBOR and tough legacy contracts?
  • More...

LIBOR transition—legislative solutions to tough legacy contracts

This Practice Note provides focused information on legislative solutions put forward in the US, UK and EU for addressing the issue of tough legacy contracts in the context of the cessation of the London Interbank Offered Rate (LIBOR). It:

  1. explains what is meant by ‘tough legacy contracts’ and why they are an issue

  2. summarises the legislative solutions put forward in the UK, US and EU and the current status of the legislation

  3. discusses to what extent the legislative solutions may address the tough legacy issue, with a particular focus on the UK, and

  4. includes a table comparing key aspects of the legislative solutions

For a quick reference guide to key issues and terminology in relation to LIBOR transition, see Practice Note: LIBOR transition—glossary and quick reference guide.

What are tough legacy contracts and why are they a problem?

What is meant by ‘tough legacy contracts’?

This phrase is used in the context of LIBOR transition to refer to LIBOR-based contracts that:

  1. mature after the end of 2021

  2. do not have adequate contractual fallbacks—for example, they may make no provision for LIBOR being discontinued, or the fallbacks included may be uneconomic or impossible to calculate, and

  3. are, for one reason or another, difficult to amend

Why are tough legacy contracts a problem?

The Financial Conduct Authority (FCA) has confirmed that all LIBOR settings will either

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