LIBOR - TRANSITION - Importance of "FALL-BACK" CLAUSES
The Financial Conduct Authority (FCA) announced that it would not compel banks to submit LIBOR quotations after 2021. The uncertainty and potential legal, economic, regulatory risk in discontinuation of the LIBOR has made financial regulators, authorities to actively move away from LIBOR and adopt Alternate Reference Rates (ARRs). T he London Interbank Offered Rate (LIBOR) has been used extensively as a reference rate in a range of financial products and instruments for more than 40 years. RBI Following such announcement, RBI has been closely monitoring the situation and in a recent Circular dated 8th July 2021 has issued issued an advisory to banks and other RBI-regulated entities emphasizing the need for preparedness for the transition away from London Interbank Offered Rate (LIBOR). The key steps to be taken in this regard include: Banks and financial institutions are encouraged to cease entering into new financial contracts that reference LIBOR as a benchmark...