In 2017, the Financial Conduct Authority, the U.K. authority that oversees the London interbank offered rate (“LIBOR”), announced that LIBOR may be phased out after the end of 2021. The announcement applied to all currency and term variants of LIBOR, including U.S. dollar denominated LIBOR (“USD LIBOR”). The Financial Conduct Authority later confirmed that all LIBOR settings will either cease to be provided by any administrator or no longer be representative: (i) immediately after December 31, 2021, in the case of all sterling, euro, Swiss franc and Japanese yen settings, and the one-week and two-month U.S. dollar settings; and (ii) immediately after June 30, 2023, in the case of the remaining U.S. dollar settings.
In response to the 2017 announcement, the Board of Governors of the Federal Reserve System and the Federal Reserve Bank of New York convened the Alternative Reference Rates Committee (the “ARRC”) to identify alternative reference rates that could be used to replace USD LIBOR. The ARRC was tasked with finding a replacement rate (or rates) that would be more robust than USD LIBOR and that would comply with certain standards. The ARRC recommended the Secured Overnight Financing Rate (“SOFR”) as a replacement for USD LIBOR. The Federal Reserve Bank of New York began publishing SOFR daily as of April 3, 2018.
A version of this article was originally published by Chapman and Cutler LLP in July 2020. The full republished article is posted below with permission.