Following the UK’s Financial Conduct Authority (FCA) announcement that London Interbank Offered Rate (LIBOR) would no longer be published after 31 December 2021, lenders such as banks and other financial institutions were faced with the tedious task of transitioning their contracts denominated in LIBOR and maturing after 2021.

Briefly, LIBOR is the benchmark reference rate, published daily in multiple currencies and used for determining interest rates for various financial products such as derivatives, bonds and loan structured products in various countries.

The decision to replace LIBOR was taken following the 2007 financial crisis, triggered by high-profile scandals involving LIBOR manipulation as a result of a lack of regulatory and supervisory oversight within which this fundamental interest rate was calculated.

Alternative risks free rates (RFRs) are now being published in various currencies where calculations are based on past transactions and published on an overnight basis. The RFRs are considered to be more reliable given that their calculations are based on recorded transactions which are more representative of the underlying markets rather than relying on submissions from panel banks which was the case for the determination of LIBOR.

Bowmans’ Mauritian practice was mandated by a leading commercial bank in Mauritius to advise and assist with the transitioning away from their LIBOR based contracts, aligned with the international practices and requirements. Effectively, the bank’s financial contracts for corporate, retail and private banking clients as well as the syndicated loan agreements denominated in foreign currency had to be reviewed and amended, to cater for a replacement interest rate, calculated by reference to an RFR-based rate.