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Litigation risk makes for a bumpy ride from LIBOR to risk free rates
Financial institutions continue to prepare for the anticipated cessation of the publication of the London Interbank Offered Rate (LIBOR) benchmark after the end of 2021 and its replacement with “risk-free” overnight rates, including reformed SONIA (for sterling) and the new SOFR rate (for U.S. dollars). Transitioning affected financial products to the new rates and amending legacy books is a massive project for any sizable institution. And despite even diligent efforts to meet that challenge, there is growing recognition that the transition will not be perfect, so that legacy instruments will pose significant litigation risk for the financial industry.
