Legal Update: The Central Bank of Kuwait issues circular on the upcoming LIBOR transition

The transition away from the London Interbank Offered Rate (LIBOR) to alternative risk free rates will occur in the short term. In order to progress this phase out in an orderly manner, the Central Bank of Kuwait (CBK), on 15 November 2021, issued a circular to all banks under its supervision covering:

New contracts - The banks should cease forming or engaging in any new contract/transaction involving LIBOR in all global currencies by the end of 2021 which have maturity dates that exceed the dates of cessation of the relevant LIBOR rate. This applies to contracts in respect of assets, liabilities or derivatives. The new contracts must contain one or more replacement rate. The replacement rate must be clear, explicit, and unambiguous (SOFR, SONIA, SARON, STR, TONA, etc.).

Existing contracts – The banks should amend all existing contracts involving LIBOR, which have maturity dates exceeding the dates of cessation of work with LIBOR announced according to the currency, to include one or more replacement rates. The replacement rate must be clear, explicit, and unambiguous. Due diligence must be exercised in the amending of all such contracts as soon as possible, taking into consideration the best global practices in this regard.

Provision of information - The banks should provide a monthly report to the CBK setting out its LIBOR exposure across various contracts/ transactions in the various currencies. In particular, banks should set out which transactions/contracts do not include a replacement benchmark rate, transactions that are in the process of amendment or those which have already been amended.

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