UNITED STATES: SEC Publishes Statement Highlighting Risks for Market Participants in Transition from LIBOR

Tuesday July 16 2019

On 12^th July 2019, the Securities and Exchange Commission (SEC) published a statement that encourages market participants to proactively manage their transition away from LIBOR and outlines several potential areas that may warrant increased attention during that time.

It is expected that parties reporting information used to set LIBOR will stop doing so after 2021.

As LIBOR is used extensively in the U.S. and globally as a benchmark rate to set interest rates for various commercial and financial contracts, the discontinuation of LIBOR could have a significant impact on financial markets and may present a material risk for market participants, including public companies, investment advisers, investment companies, and broker-dealers.

These risks will be exacerbated if the work necessary to effect an orderly transition to an alternative reference rate is not completed in a timely manner.

The staff statement encourages market participants to identify existing contracts that extend past 2021 to determine their exposure to LIBOR and to consider whether contracts entered into in the future should reference an alternative rate to LIBOR or include effective fallback language. The statement also contains specific guidance for how registrants might respond to risks associated with the discontinuation of LIBOR.

The staff will continue to actively monitor the extent to which market participants are identifying and addressing risks associated with the expected discontinuation of LIBOR.

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