Human lawyers are still needed to check the work of these “robots” (ensuring that nothing was missed), advise bank clients on legal issues and negotiate specific terms with the counterparties. In one example, an algorithm sifts through the contracts for LIBOR provisions, outlines the process (if any) by which the financial obligation will transition to a replacement rate and determines whether amendments are necessary.
#Bad robot software
Enter the robots!Īs part of the solution to scaling the mountain of legal work involved in the LIBOR transition, some banks are employing forms of artificial intelligence (“AI”), computer algorithms and LIBOR-analyzing software to identify the affected financial obligations and the underlying contracts. Given the sheer volume of LIBOR-based financial obligations that are outstanding, as well as the approaching deadlines for the phasing out of LIBOR, some banks are looking for ways to streamline the legal work associated with this document review. Even with this form language, however, the process of identifying LIBOR-based financial obligations, reviewing the underlying contracts, preparing amendments and negotiating the terms with the counterparties can be complicated and time-consuming for banks and their attorneys. To further this endeavor, most banks have produced standardized forms of benchmark replacement language for use in amending existing contracts. To ensure a smooth transition from LIBOR to an alternate benchmark rate (the Secured Overnight Financing Rate (SOFR) being the leading contender), commercial banks and investment banks are in the process of identifying their outstanding LIBOR-based financial obligations and, if necessary, preparing amendments to the underlying contracts. Additionally, the administrator of LIBOR will cease publishing one-week and two-month LIBOR on Decemand the remaining tenors (overnight, one-month, three-month, six-month and 12-month) on June 30, 2023.
Federal regulators have recommended that banks cease entering into new contracts using the London Interbank Offered Rate (“LIBOR”) as a reference rate by December 31, 2021.