Banking litigators eye disputes from LIBOR change

Ross: Large amounts of money at stake

The replacement of LIBOR and the growth in class actions are set to come to the fore for banking litigators, according to specialist solicitors.

There are approximately £25tn in outstanding contracts referencing LIBOR, according to the Bank of England, but it is moving to the SONIA benchmark as the preferred reference rate.

It followed cases of attempted market manipulation and false reporting of global reference rates like LIBOR.

City firm RPC said many of the contracts were not drafted so their reference index could be switched away permanently from LIBOR, creating the risk of legal disputes.

The way SONIA performs is likely to be very different from LIBOR, meaning investors and borrowers could lose out from the changeover, the firm said.

With SONIA giving a different interest rate, the amount owed or paid out under the adjusted contract could be very different from that under the old LIBOR-based agreement.

Whilst the Bank of England expects use of LIBOR to have ceased by the end of 2021, many banks are already switching over to SONIA.

RPC partner Chris Ross said: “With such large amounts of money at stake, across the spectrum of financial products – including loans, bonds and derivatives – the risk of litigation is very real.

“The outstanding stock of LIBOR instruments has grown substantially since the Bank of England confirmed the shift to SONIA, which just adds to the complexity of the transition.

“If a contract is switched from LIBOR to SONIA, then there is a very high chance that one party or other will lose out – the only question is how big that difference will be.”

Mr Ross predicted that 2020 would see the continued growth in the use of financial class actions. The progress of the Tesco shareholder class action relating to false and misleading statements, despite attempts by Tesco to have the claim struck out, was “a positive sign for shareholders”.

He added: “There is a continuing trend of group litigation claims in the financial markets – from RBS to Lloyds/HBOS to the Tesco section 90A claim. These actions are becoming part of the legal landscape in the UK.

“Shareholders, like pension funds, are likely to be more willing to participate in shareholder litigation as a lot of the trail-blazing work has been done and they become more mainstream.”

Last November, shareholders who claim they were misled by one-time alternative business structure began legal action over the losses they suffered as a result. City firm Harcus Parker is acting for them.

Mr Ross said this year would also see progress in ongoing actions against a large number of investment banks in relation to Forex-rigging claims. There are now three claims underway – one in the High Court and two competing class actions in the Competition Appeal Tribunal. Other claims are expected.

The tribunal will have to decide which of these two claims, on behalf of pension funds and other asset managers, against banks can go forward.

The claims follow a European Commission finding that the banks had broken the law by engaging in cartel-like activity. A further commission finding is expected shortly.

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