Washington, D.C., April 15, 2021 – SIFMA today expressed its support for federal legislation to assist with the transition from LIBOR in testimony submitted for the record in a hearing before the House Financial Services Committee Subcommittee on Investor Protection, Entrepreneurship and Capital Markets titled “The End of LIBOR: Transitioning to an Alternative Interest Rate Calculation for Mortgages, Student Loans, Business Borrowing, and Other Financial Products.”

SIFMA notes in the testimony, “there is a large stock of existing contracts and instruments that, as a practical matter cannot be amended to utilize alternative rates.  SIFMA is supportive of Federal legislation aligned with recommendations from the Alternative Reference Rates Committee to address these situations where contracts cannot be easily transitioned from LIBOR due to legal or regulatory reasons.  We believe such legislation would benefit all market participants including LIBOR’s end users, from investors to companies to consumers, and would provide four key benefits: (1) certainty of outcomes, (2) fairness and equality of outcomes, (3) avoidance of years of paralyzing litigation, and (4) preservation of liquidity and market resilience.”

Recognizing the difficulty with transitioning LIBOR-based transactions that were executed prior to LIBOR cessation, and in many cases prior to the development/adoption of robust fallback language, the ARRC created a working group to look at options and develop recommendations for tough legacy transactions.  In March 2021, the ARRC published a proposal for a statutory mechanism to address these ineffective tough legacy transaction fallback provisions.  The legislation proposed by the ARRC would create a statutory safe harbor from litigation and replace LIBOR-based fallbacks with those recommended by the ARRC, which would be based on SOFR.   The goals of the legislative approach are manifold: to provide certainty of outcomes to contract participants, to provide equality of outcomes to market participants, and ultimately to promote the liquidity and stability of financial markets.  This legislation was signed into law in New York State in April.

SIFMA strongly recommends that Congress enact legislation that is aligned with the ARRC’s approach: “While the New York legislation is useful as regards certain New York law-governed instruments, it is not a full solution even for many of those instruments and does not address any non-New York law contracts or Federal issues such as the Trust Indenture Act.  Only Federal legislation can address these problems.  Federal legislation can address all contracts governed by a state or federal law.  There are, after all, 49 other states.  While a majority of corporate bonds and securitizations are governed by New York law, a vast number of loans, credit facilities, bonds, and other instruments are governed by state laws other than New York.  A uniform Federal law can promote the benefits we discussed above – contract certainty, fairness and equality of outcomes, avoidance of years of litigation, and market liquidity – across the nation.  A patchwork of inconsistent, or non-existent, state legislation, cannot do this.”

SIFMA further notes “While U.S. Dollar LIBOR is expected to be published until June 2023, we believe time is of the essence as regards proposed legislation.  Bank regulators are highly focused on moving as much activity away from LIBOR as quickly as possible.  Additionally, once legislation is passed, it is not the case that the provisions of the law are implemented immediately.  There are a large number of parties involved in these transactions, and it will take meaningful amounts of time for all parties to revise internal systems and models to account for changes to interest rate calculations, for transaction-level changes to be communicated to end-users, and for other steps that need to be taken to happen.”

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SIFMA is the leading trade association for broker-dealers, investment banks and asset managers operating in the U.S. and global capital markets. On behalf of our industry’s nearly 1 million employees, we advocate for legislation, regulation and business policy affecting retail and institutional investors, equity and fixed income markets and related products and services. We serve as an industry coordinating body to promote fair and orderly markets, informed regulatory compliance, and efficient market operations and resiliency. We also provide a forum for industry policy and professional development. SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial Markets Association (GFMA). For more information, visit http://www.sifma.org.