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Clifford Chance

Clifford Chance


Synthetic LIBOR and UK Contractual Continuity: Critical Benchmarks (References and Administrators' Liability) Bill

13 September 2021

Most non-USD LIBOR tenors and currencies will cease altogether on 31 December 2021. A few Sterling and Yen tenors are likely to continue in a modified form (“synthetic LIBOR”) for a limited period, pursuant to powers given to the UK FCA. Such synthetic LIBOR would replace LIBOR, with the intention that it would be available for use in a limited range of "tough legacy" contracts. Those eligible contracts are yet to be specified by the UK FCA.

Legislation giving the UK FCA powers to declare a critical benchmark as unrepresentative and to demand modification of methodologies - as well as to determine which contracts or arrangements might use the modified rate - are already in place. This was done via amendments to the UK Benchmarks Regulation made by the UK Financial Services Act 2021. A missing element was UK legislation to address contract continuity, where parties to an eligible contract use synthetic LIBOR, rather than the LIBOR rate specified in the contract. This is being addressed in a new Bill introduced into the House of Lords on 8 September 2021: the Critical Benchmarks (References and Administrators' Liability) Bill.

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