SEC Commissioner: What Do LIBOR Transition and ESG/SFDR Have In Common? – Each Might Make You a Werewolf!

11 May 2021 Foley Funds Legal Focus Blog
Authors: Stuart E. Fross

SEC Commissioner Hester Peirce suggested in recent remarks before the ISDA Trading Forum (April 28, 2021) that LIBOR came to mind when reading a horror story involving a werewolf.  That seems about right, as both are very hairy, and can have a nasty bite.  Speaking of bite: recall that OCIE has LIBOR preparedness on its 2020 exam priorities.  Noteworthy for advisers, OCIE’s focus is on investor disclosure of transition plans, performance advertising, LIBOR benchmarks and identification of LIBOR-linked contracts that might extend beyond year-end 2021, when LIBOR gets the old “silver bullet.”  (Practice Tip: Look for LIBOR-linked contracts now so that you will be ready at year end).

And, in a note that might be of interest to anyone following ESG/SFDR regulation (both from the SEC and the EU), Commissioner Peirce queries whether the lessons learned from the LIBOR “debacle” occasioned by market participants assuming that something was well understood, when LIBOR simply was not what it appeared to be, might bespeak caution before putting on the mantle of defining what makes for a green investment.  LIBOR came to be not a transactions price, but a rate made up by experts in the absence of any transactions.  Just as LIBOR came to be misunderstood and misleading, so too ESG metrics might give a false sense of meaning to a misleading number.  She queries – if you kill off all the bats and compel the use of pesticides in their place, does your bat-swatting wind turbine make your finance project ESG friendly, or leave you open to claims of “howling at the moon” (and with the SEC howling at you)? 

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