Staff at the Securities and Exchange Commission have published a statement that encourages market participants to manage their transition away from LIBOR and outlines several potential areas that may warrant increased attention during that time.
"The transition away from LIBOR is gaining some much needed traction, but, as the staff's statement makes clear, significant work remains," said Chairman Jay Clayton. "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."
LIBOR is used extensively in the US and globally as a benchmark rate to set interest rates for various commercial and financial contracts. The SEC notes that the discontinuation of LIBOR could have a significant impact on financial markets and may present a material risk for market participants, including public companies, investment advisers, investment companies, and broker-dealers.
The staff statement encourages market participants to identify existing contracts that extend past 2021 to determine their exposure to LIBOR and to consider whether contracts entered into in the future should reference an alternative rate to LIBOR or include effective fallback language. The statement also contains specific guidance for how registrants might respond to risks associated with the discontinuation of LIBOR.
