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Another day, another LIBOR warning

On 24 June 2021, the EC issued a joint statement with the EBA, ECB and ESMA, warning all market participants to cease their use of any LIBOR settings.

The statement reminds readers that the amended BMR has been in force since 13 February 2021, most particularly Art. 23b empowering the EC to designate a replacement rate for all EU contract references for a soon to be unpublished benchmark. It acknowledges the 5 March 2021 FCA announcement that 35 LIBOR settings will cease publication or will no longer be representative on a phased–in basis with majority ceasing at year-end.  The statement makes it clear that market participants should not rely on or expect any white knight intervention from the EU-

“In order to ensure a smooth transition away from LIBOR, market participants are encouraged to actively reduce their exposure to LIBOR and not wait for the exercise by the European Commission of its new powers to designate a replacement for LIBOR pursuant to Article 23b of Regulation (EU) 2016/1011.”

The Regulators recommend the following actions-

”In order to achieve this result, the following actions are strongly encouraged:

 · 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”); and

· include robust fallback clauses nominating alternative rates in all contracts referencing LIBOR”

The statement is essentially another LIBOR death knell cover version, albeit one played by a Regulator “Supergroup”. The implication may be that their continuing monitoring of “the situation and LIBOR exposures” has been a cause for concern, but this far from explicit. Nevertheless, the statement serves as yet another reminder that there will no last-minute reprieve for LIBOR and that for the vast majority of rerencing-contracts, the only solution is timely amendment.

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