Regulatory updates

Before 2021, the London Inter-Bank Offered Rate (LIBOR) was seen as one of the most significant numbers, been used as an interest rate benchmark across various contracts in multiple currencies. However, with questions on its integrity and reliability being raised globally, in 2017, the Financial Conduct Authority (FCA) had announced that post 2021, corporates and banking institutions should adopt Alternative Reference Rates (ARRs) in place of LIBOR.

Consequently, by 31 December 2021, LIBOR linked to most of the currencies worldwide had ceased permanently, with certain select currencies like USD LIBOR, targeting to finally phase it out by 30 June 2023.

The phasing out of LIBOR inter alia has key impact on business, by amendments to existing agreements for insertion of fallback clauses, transition to ARR, etc.. Impacts were also on accounting, for which the MCA⁸Amendments issued by the MCA is in accordance with the amendments issued by the International Accounting Standard Board to the IFRS. has issued certain exemptions, practical expedients and disclosure requirements in two phases- Phase 1 deals with pre-IBOR reform and Phase 2 deals with post-IBOR reforms. With 30 June 2023 being round the corner, regulators are issuing constant reminders to banks/financial institutions and other businesses to complete the transition.

As on date, India has achieved a smooth transition with regard to LIBOR settings that have ceased to be published/become non-representative after 31 December 2021. New transactions are now being predominantly undertaken using ARRs, such as Secured Overnight Financing Rate (SOFR) and Modified MIFOR⁹MIFOR is a domestic interest rate benchmark that is reliant on USD LIBOR. It is published by the Financial Benchmarks India Private Limited (FBIL). (Mumbai Interbank Offered Rate).

With effect from 30 June 2023, the publication of remaining five USD LIBOR settings would cease permanently, and accordingly, the MIFOR would also cease to be published. In this regard, RBI vide a press release dated 12 May 2023 has stated that:

• Banks/financial institutions/their customers should not enter into any new transaction that relies on or is priced using the USD LIBOR or the MIFOR
• Banks/financial institutions should take all the necessary steps to ensure insertion of fallback clauses in all remaining legacy financial contracts that reference USD LIBOR or MIFOR
• While certain synthetic LIBOR settings would continue to be published post 30 June 2023, these settings are not meant to be used in new financial contracts
• Banks/financial institutions should develop systems and processes to manage the complete transition away from LIBOR w.e.f. 1 July 2023.

---

To access the text of the press release, please click here