ARRC Recommends Best Practices for LIBOR Transition
The Alternative Reference Rates Committee ("ARRC") recommended Best Practices to prepare for the cessation of U.S. dollar LIBOR ("USD LIBOR").
In general, ARRC encouraged firms to discontinue new USD LIBOR products or, where that would not be practical, to include the ARRC-recommended fallback language. Market participants were advised to assume that use of LIBOR will end as of December 31, 2021.
Additionally, the ARRC urged financial institutions to (i) meet the recommended timelines, (ii) implement internal controls consistent with ARRC's "Practical Implementation Checklist for SOFR Adoption," (iii) track new ARRC recommendations, and (iv) incorporate ARRC-recommended conventions into new contracts.
Commentary
All financial institutions involved in USD LIBOR-linked transactions should closely review the Best Practices. For large firms that have already devoted significant resources to LIBOR transition, this may simply be a matter of assessing current initiatives against the timelines and suggestions made by the Best Practices. For other firms, the Best Practices should serve as guidelines for establishing internal procedures and engaging (or not engaging) in LIBOR-related transactions. While the Best Practices are not binding regulatory guidance (and ARRC acknowledges as much), firms that act in accordance with the Best Practices should be well-positioned for both regulatory compliance and contract remediation.