Davide Barzilai, head of Norton Rose Fulbright’s Global IBOR Transition Team, discusses the challenges raised by the LIBOR transition and how his team is tackling the task
Said to be the world’s most important number, the London Interbank Offered Rate (LIBOR) is a global benchmark interest rate which underpins financial contracts worth trillions of pounds; including bonds, loans and derivatives.
So how does LIBOR work? Each day a group of major banks submit an estimate of the interest they would pay to borrow funds from each other. LIBOR is then calculated by the ICE Benchmark Administration using these estimates.
However, the global financial crisis and LIBOR scandal of 2012 uncovered that the methodology used for calculating this rate was open to manipulation. LIBOR can be used as an indicator of a bank’s health and so it came to light that banks were estimating artificially low rates. “If the bank was in trouble and its creditworthiness was going down, some rogue traders would try to hide this by estimating a lower rate,” Davide Barzilai explains.
As a result, investigations were undertaken by the authorities in America and the UK, and fines were issued to the banks, in some cases in the billions. Barzilai elaborates: “The global financial market and the regulators determined that it was no longer appropriate to continue to rely on LIBOR. It was deemed very unsafe for markets, unfair to customers and a poor underpinning for the global financial market.”
In July 2017, the chief executive of the Financial Conduct Authority, Andrew Bailey, announced the transition away from LIBOR. From 1 January 2022 banks will no longer have to submit interest rate estimates, thereby bringing LIBOR to an end.
What does this mean for banking and finance lawyers? Barzilai explains that because LIBOR is frequently referenced in transactions, the shift away from LIBOR has created a mass due diligence exercise; thousands of documents must be combed through in their entirety for any references to LIBOR. To give me a better understanding of the scale of this task Barzilai says that just one bank came to his team with 600,000 contracts to examine.
The challenge is “if a contract references LIBOR, what happens if LIBOR doesn’t exist?”, Barzilai says. He goes on to explain that some contracts have ‘fallbacks’, for example, a contract may say to use the last LIBOR quoted. This means that once LIBOR comes to an end, the contract would rely on the rate of 31 December 2021.
“It’s a global task”, he tells me and so a global task requires a global team. Barzilai’s team is made up of around 70 lawyers and non-lawyers around the world in America, Australia, Canada, London and the Middle East. Norton Rose Fulbright’s tech hub in Newcastle also plays a central role.
To aid their mammoth task, Barzilai’s team is using legal technology in a number of ways. For example, a collaboration platform facilitates easy communication between both the firm’s lawyers and the client. Artificial intelligence is used for due diligence and a contract automation tool is used to generate the first draft of contracts.
Barzilai’s work as a banking and finance lawyer is a far cry from his first job working as a private investigator (PI). He tells me that his last job as a PI involved going undercover as a student at the University of Cambridge. It was through this experience that Barzilai discovered his love for studying and decided to apply to university himself.
From a young age Barzilai had an interest in business which saw him selling sweets at school from the age of 11. A school economics trip to The London International Financial Futures and Options Exchange (LIFFE) prompted his interest in stocks and shares but it was from working with solicitors during his time as a private investigator that made Barzilai decide to pursue a career in law.
He sought advice from lawyers to help him make the decision of choosing between studying law at university or pursuing one of his many interests. “All the City law firms uniformly said to study what interested me and told me that I could always pursue law later.” Following this advice Barzilai read Middle Eastern Studies at the University of Manchester and at the end of his first year he successfully secured a training contract with Clifford Chance.
Three years post-qualification the opportunity arose to combine two of Barzilai’s interests: finance and Middle Eastern studies. He then joined the Islamic Finance practice at Norton Rose Fulbright.
Barzilai’s varied career also saw him spend two and a half years at the firm’s Singapore office, from 2003-2005, working in asset finance before being called back to London where he made partner. He then spent a further seven years in the Hong Kong office. “I liked the atmosphere and lifestyle in Asia,” he reflects. “You had more autonomy: back then it was a smaller office, for example, when I was in Singapore there were under 20 lawyers.”
For students aspiring to work at a global firm such as Norton Rose Fulbright, Barzilai advises “being interested in what our clients are doing around the world and what their issues are”. This gives them a better understanding of the market, and will help when forming client relationships later in their careers.
When it comes to what makes a good banking and finance lawyer Barzilai tells me that it is essential “not to forget that the law underpins everything that we do. Banking, in essence, is still contract law”. He adds that attention to detail is “crucial”, and aspiring lawyers should never overlook the importance of building their networks.
Davide Barzilai will be speaking alongside other Norton Rose Fulbright lawyers at ‘Banking & finance insight: the transition away from LIBOR’, a virtual student event taking place tomorrow, on Wednesday 30 September. You can apply to attend the event, which is free, now.
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