NEED FOR LEGISLATIVE INTERFERENCE FOR LIBOR TRANSITION IN INDIA: LESSONS FROM NY, UK AND EU
Keywords:
NY, The London Interbank Offered Rate (LIBOR)Abstract
The London Interbank Offered Rate (LIBOR) will cease to operate as the primary benchmark
rate for financial instruments by the end of 2021. In light of this massive transition and
challenges associated with it, Reserve Bank of India has taken steps to explore, develop and
assist in adoption of an alternative risk-free reference rate. However, from a legal standpoint,
the challenge of amending the financial instruments referring to LIBIOR is left uncharted in
Indian markets. Large number of financial agreements referring to LIBOR will continue to
survive the cessation of the LIBOR and fresh agreements having exposure to LIBOR are still
being entered into. Given the scale of the task involved and the time period being relatively
short, timely amendments cannot be excepted out of all the financial instruments with LIBOR
exposure. This article identifies the ill-preparedness of Indian financial market and warrants
the need for India to provide for a legislative fix to deal with issues arising out of LIBOR
contracts without or with inadequate fall-back provisions, categorised as ‘Legacy Contracts’.
In absence of legislative interference, the result could be a large volume of cases involving a
large volume of transactions and substantial financial market disruption, burdening the state
resources. This piece draws inspiration from legislative solutions from various jurisdictions
like the United Kingdom, the European Union and the State of New York in order to
recommend legal measures to be adopted in India. This would ensure smooth move towards
alternative risk-free rates without increasing litigations or creating market disruption.
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References
LEGISLATIONS AND NOTIFICATIONS
• FCA Announcement on future cessation and loss of representatives of the LIBOR
Benchmarks, FINANCIAL CONDUCT AUTHORITY (Mar. 05, 2021).
• FCA Statement on Planned Amendments to the Benchmarks Regulation, FINANCIAL
CONDUCT AUTHORITY (Jun. 23, 2020).
• Regulation of the European Parliament And Of The Council amending Regulation (EU)
2016/1011 and amending Regulation (EU) No 648/2012, EUROPEAN PARLIAMENT (Jan.
22, 2021).
• Article 18-C, Senate Bill S297B/Assembly Bill 164B, State of New York (Jan. 06,
2021).
• Office Memorandum: Force Majeure Clause (FMC), Government Of India (Feb.19,
2020)
• Proposed amendments to the Benchmark’s Regulation, FINANCIAL CONDUCT
AUTHORITY (Jun. 23, 2020)
• Announcements on the End of LIBOR, FINANCIAL CONDUCT AUTHORITY (Mar. 05,
2021).
REPORTS
• LIBOR: The Rise and Fall, RESERVE BANK OF INDIA (Nov. 11, 2020)
• FCA Consults on New Benchmarks Powers, FINANCIAL CONDUCT AUTHORITY (Nov.
18, 2020)
ARTICLES REFERRED
• Shayan Ghosh, Lenders test transactions on LIBOR successor SOFR, LIVE MINT (Jan.
27, 2021)
• Nand Gopal Anand, Ankit Sinha, Harshit Dusad and Garima Parakh, Transitioning
from LIBOR-The Road Ahead for the Indian Banking Sector, INTERNATIONAL BAR
ASSOCIATION
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