Recent LMA LIBOR Related Changes - Their Possible Impact On Islamic Finance Documents

At the end of last year, the Loan Market Association (LMA) updated its facility agreements, including changes to the interest rate definitions and mechanics. Many Islamic finance transactions use a conventional interest rate benchmark, such as LIBOR, to calculate the profit or variable rental. Richard de Belder and Adam Pierce explain how one of the recent LMA changes may affect those transactions.

LMA Screen Rate definition and ICE LIBOR Error Policy

One recent development that the LMA's amendments reflect is the LIBOR administrator's publication of a new "ICE LIBOR Error Policy" in November 2014. This provides that, although LIBOR will continue to be published at around 11.45am each business day, a LIBOR contributor bank (i.e. one of the banks that provide the rates on which LIBOR is calculated) can now report any error in the rate(s) it has submitted to the LIBOR administrator up to 3pm on that day. If that error impacts on what the quoted rate should have been,