UPDATED: Fed’s final rule on LIBOR replacement benchmarks published, takes effect Feb. 27

A final rule from December identifying benchmark rates based on the Secured Overnight Financing Rate (SOFR) that will replace LIBOR (formerly known as the London Interbank Offered Rate) in certain financial contracts after June 30, 2023, is set to take effect Feb. 27.

Adopted by the Federal Reserve Board on Dec. 16, the final rule will implement requirements of the Adjustable Interest Rate (LIBOR) Act. The rule establishes benchmark replacements for contracts governed by U.S. law that reference certain tenors of U.S. dollar LIBOR (the overnight and one-, three-, six-, and 12-month tenors) and that “do not have terms that provide for the use of a clearly defined and practicable replacement benchmark rate following the first London banking day after June 30, 2023,” the Fed wrote.

It said these contracts include U.S. contracts that do not mature before LIBOR ends and that lack adequate “fallback” provisions that would replace LIBOR with a practicable replacement benchmark rate.

In a summary, the Fed said the final rule:

  • identifies different SOFR-based, Fed Board-selected benchmark replacements for different categories of LIBOR contracts;
  • identifies certain benchmark replacement conforming changes related to the implementation, administration, and calculation of the Board-selected benchmark replacement;
  • expressly indicates that a determining person may select the Board-selected benchmark replacement for the relevant type of LIBOR contract, with any applicable benchmark replacement conforming changes;
  • expressly provides that the LIBOR Act’s protections related to the selection or use of the Board-selected benchmark replacement shall apply to any LIBOR contract for which the Board-selected benchmark replacement becomes the benchmark replacement (whether by operation of law or by the selection of a determining person); and
  • indicates that under the LIBOR Act, the final rule preempts any state or local law or standard relating to the selection or use of a benchmark replacement or conforming changes.

The notice of final rule, published Thursday in the Federal Register, also discusses comment letters received on the proposal (29, it said) and the Fed’s decisions related to those. It said commenters included eight banks and banking trade associations; six other trade associations; four government-sponsored enterprises; four consultants and researchers; three individuals; one government agency; one consortium of consumer groups; and two anonymous comments.

Reg lookup: Regulation Implementing the Adjustable Interest Rate (LIBOR) Act

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