ARRC Releases ‘Best Practices’ for Libor Transition

The Alternative Reference Rates Committee today issued a set of best practices to help market participants complete preparations for the possible cessation of the U.S. dollar-denominated London Interbank Offered Rate after 2021, including recommended timelines. “With 19 months left until Libor could become unusable, it is important that market participants accelerate their transition efforts,” the ARRC said.

Key practices include incorporating ARRC-recommended fallback language into contracts for new Libor cash products as soon as possible and ceasing new use of Libor. The ARRC recommended that vendors and technology providers complete work necessary to support its preferred alternative, the Secured Overnight Financing Rate, by the end of 2020. When a party to a contract may select a replacement rate at its discretion after a key trigger, ARRC recommended that this party disclose its planned rate selection at least six months before the new rate’s effective date.

In addition to key steps and timelines for transitioning rates for floating-rate notes, business loans, consumer loans, securitizations and derivatives, the ARRC best practices cover internal rate transition programs and ongoing ARRC recommendations.