We’re now well into the first quarter of 2020, and despite the global economy stuttering following months of trade tensions and Brexit uncertainty, and the more recent impact of the global coronavirus pandemic, existing trends in the banking sector continue to march on. In this article, partners Paul Gair, Harry Parker, and Tim Waller from UK law firm TLT give their views on what we’re likely to see across three areas shaping banking at the start of this new decade. 

 

 LIBOR – the end of the road
Paul Gair

In the run-up to the end of LIBOR in 2021, there has been a marked increase in communications from regulators and the Bank of England since the start of 2020, with the expectation that firms should have‘ clear evidence of engagement’ to ensure that they are ready for the changes. This means that firms are, or at least should be, progressing through their plans for the transition to avoid undue regulatory scrutiny. It is therefore imperative for firms to first understand how the end of LIBOR will impact them and avoid the temptation of adopting a ‘wait and see’ approach.

While regulators have provided a degree of clarity about the timeline for the next two years, some pieces of the puzzle are still to be put in place. For example, firms are still awaiting infrastructure upgrades to enable the transition to RFRs and additional guidance on several key issues, such as how to deal with so-called ‘tough legacy contracts’.

Over the course of this year, firms will have to address the implications of the end of LIBOR on them, most notably in loan markets where progress is less advanced. In an uncertain environment, firms will need to implement robust communication strategies, address their books of existing LIBOR-linked contracts and consider whether their internal governance structures will still be fit for purpose.

It goes without saying that amending the wording of existing loans agreements to ensure that they remain effective after 2021 will be a substantial undertaking for firms, requiring significant time and resource to ensure it is completed satisfactorily given the regulatory scrutiny. Each of these areas will need to be taken seriously and firms will no doubt be looking for clarity as they consider each area in turn.

It is not an understatement to say that the transition to RFRs for firms will present a huge challenge, but with the right support, all affected firms can now accelerate their plans to ensure they are ready for the switch at the end of 2021.