The Securities and Exchange Commission is encouraging market participants to transition away from using the London Interbank Offered Rate (LIBOR) as a reference for setting the interest rates on loans.
It is expected that the transition away from LIBOR will go through 2021. LIBOR is used extensively in the United States and around the world as a benchmark rate to set interest rates for various commercial and financial contracts. Thus, the discontinuation of LIBOR could have a significant impact on the financial market. These risks could be even greater if there is not an orderly transition to an alternative reference rate.
“The transition away from LIBOR is gaining some much-needed traction, but, as the staff’s statement makes clear, significant work remains,” SEC Chairman Jay Clayton said. “The risks the statement highlights deserve careful attention and I draw particular attention to the staff’s observation: ‘For many market participants, waiting until all open questions have been answered to begin this important work likely could prove to be too late to accomplish the challenging task required.’ The SEC will continue to monitor disclosure and risk management efforts related to the LIBOR transition, and we welcome engagement from market participants on these important matters.”
The SEC outlines several potential areas that may warrant increased attention during that time. Among them, the SEC is encouraging market participants to identify existing contracts that extend past 2021 to determine their exposure to LIBOR. Further, they should consider whether those long-term contracts should reference an alternative rate to LIBOR or include effective fallback language.
SEC staff will continue to monitor the impacts of the expected discontinuation of LIBOR. Market participants with questions or information on the transition can e-mail the SEC at LIBOR@sec.gov, CFORS@sec.gov, or IMDRAO@sec.gov.
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