Last week, Alison Meredith, Senior Legal Analyst at Diligen, published an article Legal IT Insider regarding the end of the London Interbank Offered Rate (LIBOR) and its impact on contracts worldwide. For companies and lawyers that will need to find and update contracts related to LIBOR, Alison outlines how Diligen’s AI contract review can fulfill the job easier.
When traveling abroad, we rely on currency exchange rates to serve as an agreed upon medium on the value of goods and services. Banks too need to agree upon rates for doing business. But what happens when those rates cease to exist? And what does that mean for businesses that rely on them?
LIBOR, the London Interbank Offered Rate, is an interest rate used globally as a benchmark for trillions of dollars of loans. Every day, panel banks send their best guess of the cost of borrowing to the Bank of England who then take the average to determine the rate. Reliance on human “expert judgement” rather than an objective true cost lent itself to easy manipulation, and the Financial Conduct Authority (FCA) has now decided it will no longer require banks to submit their daily rate after 2021, effectively announcing LIBOR’s demise.
The end of LIBOR isn’t just a UK problem since LIBOR is used worldwide. Millions of contracts all over the world reference LIBOR. Contracts that are set to expire before 2021 are safe to ignore, but those with due dates past that need to be dug up, dusted off and renegotiated. If they’re not, come 2021, lenders may find themselves caught short.