Deal with Libor exposure now, legal firms warn

LiborLawyers could suffer from under capacity as asset managers and other firms delay renegotiating contracts to replace Libor as a reference benchmark in funds, it has been warned.

Although Libor is not set to be withdrawn until 2021, a survey conducted by JCRA, an independent financial risk management consultancy, and Travers Smith, a City law firm, found that a “large majority” of firms with exposure to Libor are yet to start making preparations for its discontinuation.

Of the more than 100 firms surveyed, 83% were yet to start making changes to contracts.

Joshua Roberts, JCRA’s lead adviser on benchmark reform, said: “The numbers tell their own story. There is going to be a huge amount of renegotiation of contracts in the next few years, and we are concerned that many firms may leave this to the last minute. This will create a significant issue of capacity as there is only a finite number of legal advisers with the expertise necessary to renegotiate these contracts.”

Roberts said 9% of firms were not aware whether their contracts would be affected by the discontinuation of Libor and that “even among sophisticated firms, there seems to be a degree of uncertainty over exactly where these exposures lie”.

Three quarters of the firms polled said they did have contracts that both reference Libor and have a life span beyond 2021.

The survey focused on derivatives users and the firms polled covered investment funds, asset managers, property developers, social housing associations, infrastructure developers, corporates and banks.

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