“Racing” to the IBOR transition finish line

Purpose Summarize and review the key developments during 2021 relating to transition of the London InterBank Offered Rate (LIBOR) to alternative risk-free rates, in accordance with the guidance of global regulators and market participants. Design/methodology/approach Outlines and explains four key events to date during 2021 that are instrumental to the success of LIBOR transition, including the ISDA 2020 IBOR Protocol and Supplement, the 5 March 2021 announcements by ICE Benchmark Administration and the Financial Conduct Authority, the transition of interdealer swap conventions from LIBOR to SOFR, and the ARRC endorsement of the CME Group SOFR term rate. Findings The global adherence to the ISDA Protocol and Supplement, the successful launch of “SOFR First” and other “RFR First” swaps convention transitions, and the ARRC’s endorsement of CME’s SOFR term rate have given the market the clarity and tools that it needs to complete the transition away from LIBOR by the deadlines fixed by the 5 March 2021 benchmark transition event. Practical implications It now is clear that market participants globally have the resources to, and must, move to adopt alternative reference rates and related operational systems and other infrastructure to cease origination of new LIBOR-linked contracts after 31 December 2021. The ARRC’s endorsement of the SOFR term rate for business loans and related derivatives and securitizations is a critical positive development for the structured finance market. Originality/value Expert analysis and guidance from experienced finance lawyers.

THE TRUST AS SPECIAL-PURPOSE INSTITUTION

The trust figure has undergone interesting developments in South African law during the last century. Due to its flexibility and multi-functionality it has developed as the legal institution of choice for many holistic business structures: from estate-planning and risk-protection, to financial-instrument entity. Particular financial innovations, such as securitization, required regulators to come up with fresh solutions within existing legal and regulatory systems. The traditional role of the inter vivos trust as a family wealth-transfer device became rather trivial as the importance of the financial and corporate roles of trusts increased. Trusts are not only prevalent in securitization and other investment roles, but also fulfil an increasingly important role in organizational law, which includes a variety of business-legal fields. The evolutionary process of the trust as collective investment-scheme vehicle to that of a legal entity in structured-finance programmes,such as a special purpose instrument, matured without any resistance in South Africa. It is submitted that, in the trust-development process, South Africa should not necessarily find its inspiration solely in developed nations, but should rather position itself in its real context of a developing Southern African democracy, with the potential of becoming an important financial innovator in a world of economic turmoil.It is submitted that a sound legal and regulatory framework for the application of trusts in the financial sphere is crucial. International best practice requires a definite and effective regulatory environment for economic expediency. It is submitted that a hybrid system, as found in South Africa, is better suited to adapt to the challenges of an ever-changing legal and economic reality. It is submitted that legislative interventions should be limited to the bare minimum and a holistic approach should be adopted, including the ratification of The HagueConvention on Trusts and some focused soft-law interventions.