Benchmark Reform: The Rosetta Stone for brand new and Old Law

As anyone affected is painfully aware, the discontinuation of LIBOR presents an enormous challenge to legal departments of huge financial institutions. Most organisations are already making progress against the enormous task of transitioning agreements based on LIBOR to an alternative rate. Spanning countless impacted financial contracts across a wide range of business areas, these LIBOR projects represent a formidable challenge even to those financial institutions who have successfully managed past mega-projects associated with uncleared derivatives, Brexit and others. With this much scale and complexity, the reflexive reaction – throw a mix of in-house and outside counsel in the task – was going to become grossly inefficient, impractical and risky.

The legal and operational complexity from the task necessitates the better of 'old' law and the very best of 'new' law , without anything getting lost forwards and backwards. Successfully bridging both of these worlds can not just take the trauma from LIBOR transition, but also provide a blueprint for optimizing the legal purpose of the near future.

What’s so tricky about benchmark reform?

Two things. One, the complexness. It’s not only a matter of leaving LIBOR, a uniformly understood and accepted standard across jurisdictions and types of agreements but on your journey to a number of different alternative rate options, that are still evolving as the market comes to a consensus. Understanding the risks – financial, operational, and legal – requires sophisticated, in-depth experience. Two, the scale. LIBOR has been such an industry standard for so long that decoupling the massive volume of agreements directly and indirectly associated with LIBOR represents a Herculean project management task for any organisation.

These two challenges work to the respective strengths of old and new law. That old law type of trusted advisors with extensive market knowledge gained from advisory activities across multiple clients is vital within the dynamic and ambiguous context of benchmark reform, where most organisations want to meet, not make the market. The evolving nature from the project exacerbates the size problem as market uncertainty will condense timelines. This is when the advantages of ‘new law’ enter into their own, with process excellence, project management, technology-enablement and smarter resourcing.

Lost in translation

While GCs have proven increasingly receptive to new law, it's generally been in relation to specific, lower complexity bodies of labor, outside of old law scope. LIBOR projects present the most urgent and compelling chance of old law and new law methods to be integrated, but doing this requires translating between two very different dialects of legal work:

• Old law concentrates on divergence and provides advice to risk mitigate against it. It appears for outliers, aiming to find what's potentially novel in almost any document, regulation or market context, after which recommend how clients should react.
• By comparison, new law focusses on convergence . It aims to locate what's the same inside a body of work, while recognising the bounds to this, and just how these similarities could be utilised to create a process.

Without paying due attention to this phenomenon, expert old law lawyers and new law practitioners could wind up talking past one another.

In a dynamic and uncertain environment, the movement of work between these worlds must be nimble and built into the core of methods they work together, to increase efficiency, minimise risk and eventually reach the end of 2021 in one piece. Our experience has taught us to focus translation efforts in 2 crucial areas: playbooks and also the process around them, and governance.

Playbooks for the unprecedented

You might think that a movable feast like benchmark reform renders playbooks redundant. After all, aren’t these instructions around the treatment for contracts each and every stage of the process? In the event that isn't fixed, how can they come in handy? This is to misunderstand how powerful these may be as an artefact for translation forwards and backwards worlds. But, just like any translation, these will take expertise.

A well-designed playbook can serve as the bridge between legal advice and implementation. It maps the paths that every contract will take, with the knowledge that these will shift as the market develops. It sets out the touchpoints between advisory and implementation actions in a way that closes every process loop forwards and backwards. For example, whenever a novel issue arises in negotiation, as possible frequently expect from benchmark reform, it isn’t enough to simply raise an escalation to an advisory level. Instead, this needs to be reflected in ongoing templates, negotiating guidance and training, to ensure that even ad-hoc advisory becomes part of the collective intelligence of the combined solution.

Ongoing governance and transparency

Strong governance and transparency between advisory and implementation keep your bridge between the two open and active, enabling structured communication between your old and new law aspects of the transition team and also the stakeholders of the organization on a regular, but not intrusive schedule . It also means having insight available on a far more frequent basis by means of weekly directional operation meetings. Finally, close daily monitoring of the actual executing associates means rapid identification and resolution of challenges to the process or specific transactions. Too often, organisations depend on informal working practices and casual communication channels. That might work in the standard flow of day-to-day operations, although not inside a complex, dynamic, large-scale event like benchmark reform.

Building for that Future

If you're coping with benchmark reform, time is drained, but by combining the very best of new and old law, with special focus on the translation forwards and backwards, you are able to successfully achieve your goal with less pain.

But this may not be a one-time benefit. While benchmark reform represents the ‘burning platform’ for integrating new law and old law approaches, doing so opens new potential for BAU legal work and can form the basis of a modernised vision of legal. Combining old law virtues like legal expertise and market understand how with new law's tech-enabled efficiency brings the advantages of new law to much broader categories of more complex work.