The European Commission, the European Central Bank (ECB), the European Securities and Markets Authority (ESMA) and the European Banking Authority (EBA) encouraged market participants on Thursday 24 June to stop using the interbank rates known as LIBOR (London Interbank Offered Rate), which are due to disappear at the end of 2021.
New rules have recently been adopted to empower the Commission to designate a replacement index for benchmarks considered “critically important”, and other benchmarks, including those from third countries, whose discontinuation could affect the stability of EU financial markets (see EUROPE 12649/32).
“Nevertheless, significant reliance on any of the LIBOR settings at the time of their discontinuation or loss of representativeness may have an impact on the functioning of the European financial system”, the European authorities said in a joint statement.
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.
In particular, market participants are encouraged to 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 and to include robust fallback clauses nominating alternative rates in all contracts referencing LIBOR.
See the joint statement: https://bit.ly/2TTo0dP (Original version in French by Marion Fontana)