Fed Adopts Final Rule on SOFR as it Replaces LIBOR

WASHINGTON—The Federal Reserve Board has adopted a final rule that identifies benchmark rates based on the Secured Overnight Financing Rate (SOFR) to replace the London Interbank Offered Rate (LIBOR) in certain financial contracts after June 30, 2023.

The final rule was drafted with direction from the LIBOR Act—which was included in the omnibus spending package passed earlier this year and which was aimed at providing a uniform, nationwide solution for replacing references to LIBOR in existing contracts that do not have an adequate fallback provision.

In its statement, the Fed said the final adopted rule is substantially similar to what was proposed, with “certain clarifying changes made in response to comments.”

The Changes

The changes include:

Restating the safe harbor protections contained in the LIBOR Act for selection or use of the replacement benchmark rate selected by the Fed
Clarifying who would be considered a "determining person" able to choose to use the replacement benchmark rate selected by the Board for use for certain LIBOR contracts.

The Fed stated that consistent with the LIBOR Act, the final rule also ensures that LIBOR contracts adopting a benchmark rate selected by the Fed will not be interrupted or terminated following LIBOR's replacement.

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