On 4 January 2022, the Financial Conduct Authority published a statement noting publication had ceased for:

• all euro and Swiss franc LIBOR settings;
• the overnight/spot next, 1-week, 2-month and 12-month sterling and yen LIBOR settings; and
• the 1-week and 2-month US dollar LIBOR settings.

The remaining 1-month, 3-month and 6-month sterling and yen LIBOR settings continued to be published on a synthetic basis for use in legacy contracts only. The synthetic yen LIBOR settings cease to be published at the end of 2022.

The process of transitioning existing contracts away from US dollar LIBOR continued over 2022. In relation to cash products, this process has been supported by the LIBOR legacy playbook published by the US Alternative Reference Rates Committee in July 2022.

For the position on US dollar LIBOR and sterling LIBOR, see the ‘Outlook for 2023'.

On 16 March 2022, ICE Benchmark Administration Limited announced that it had launched ICE Term SOFR Reference Rates for 1-month, 3-month, 6-month and 12-month tenors, using data from SOFR-linked interest rate derivatives. This offers market participants an alternative to CME Group’s Term SOFR, which the US Alternative Reference Rates Committee recommended in July 2021.

On 12 October 2022, the Loan Market Association published a new exposure draft facilities agreement for the investment grade market in which interest on US dollar loans is calculated by reference to Term SOFR. The Term SOFR provisions are based on those contained in an existing exposure draft facilities agreement for use in developing markets which has also been updated.

On 14 November 2022, the European Money Markets Institute launched a new euro forward-looking term rate, ‘EFTERM’, for 1-week, 1-month, 3-month, 6-month and 12-month tenors. ICE Benchmark Administration Limited has been appointed as the calculation agent for the new rate.

The National Security and Investment Act 2021 (the “NSI Act”) came into force on 4 January 2022. It implemented a new screening regime for acquisitions of certain entities and assets located in, or which have a sufficient connection to, the UK.

There are two pillars to the regime. First, a mandatory notification regime in respect of the acquisition of control of entities active in 17 high-risk sectors. Second, a call-in power in respect of the acquisition of control of entities or assets which could pose a risk to national security. There are significant sanctions for non-compliance.

The NSI Act may impact loans funding the acquisition of relevant entities or assets and contractual provisions may be required to address certain risks. In June 2022, the Loan Market Association published updated recommended forms of security agreement for real estate finance transactions which limit the exercise of voting rights by a security agent where the NSI Act applies. The updated documents make clear that voting rights do not automatically transfer to the security agent upon the security becoming enforceable if that would give rise to a notifiable acquisition under the NSI Act. Equivalent changes have been adopted by the market in security documents for other types of transaction.

The Economic Crime (Transparency and Enforcement) Act 2022 (the "ECTEA") was passed on 15 March 2022. Among other things, this introduced a new register of overseas entities which own (having acquired since 1 January 1999 in England and Wales and since 8 December 2014 in Scotland) or wish to buy, sell, let (as landlord or tenant, for more than seven years) or grant security over UK real estate. Details of the ‘registrable beneficial owners’ of relevant overseas entities must be included on the register.

The register was created with effect from 1 August 2022 and new requirements designed to compel the registration of relevant overseas entities took effect on 5 September 2022. A transitional period applies until 31 January 2023, explained in more detail in the ‘Outlook for 2023’.

Failure to comply is a criminal offence, punishable by imprisonment or a fine (or both).

The regime has implications for all financings where an overseas entity grants security over UK real estate, whether or not that security is registered at the Land Registry.

Wide-ranging sanctions imposed by the international community in response to the conflict in Ukraine led to a renewed focus on sanctions provisions often found in loan documentation.

Facilities agreements have typically included provisions addressing the risk that borrowers become the subject of sanctions. However, the entities sanctioned in response to the conflict in Ukraine include certain financial institutions that were active in the international syndicated loan markets.

Some facilities agreements now contemplate the potential for a lender or other finance party to become a sanctioned entity and it is common to see non-exhaustive lists of sanctioned jurisdictions expanded to include the ‘so-called people’s republics of Donetsk and Luhansk’.

The Revlon litigation in the US determined whether lenders could retain a substantial payment from a facility agent made in error. An earlier decision that they could was overturned on appeal in September 2022.

The Loan Market Association published a recommended form of erroneous payment clause in June 2021 prior to the appeal. This clause provides express contractual protection for facility agents where an erroneous payment is made. Whether or not market participants choose to include it is unlikely to be affected by the earlier decision having been overturned on appeal.

In August 2022, the Loan Market Association published a model form credit risk insurance policy prepared with the assistance of the Lloyd’s Market Association and the International Underwriting Association. The model form concerns single borrower credit risk arising from a facilities agreement and has been prepared with reference to certain regulatory requirements for unfunded credit protection.

Two High Court decisions over the course of 2022 brought into question whether a sole director has the power to bind a company whose articles are based on the Model Articles.

In Re Fore Fitness Investments Holdings Ltd, Hashmi v Lorimer-Wing [2022] EWHC 191, the High Court held that a single director did not have the power to direct the relevant company’s actions. This was on the basis that the company’s articles of association, which were based on an amended form of the Model Articles, specified that the quorum of board meetings was two directors.

However, in a later decision in 2022, Re Active Wear Ltd [2022] EWHC 2340 (Ch), the High Court took a different view. Here the company had only ever had one director and its articles of association were based on the Model Articles in unamended form. The High Court held that in these particular circumstances, a sole director did have the power to manage the affairs of the company.

It is prudent when dealing with a sole director company with articles of association based on the Model Articles to make amendments to clarify the power of the sole director to bind the company. It may also be appropriate to ratify actions taken by the sole director before those amendments are made.

The Loan Market Association pursued a wide range of ESG-related initiatives throughout 2022.

In March 2022, minor updates were made to the Sustainability-Linked Loan Principles and accompanying Guidance, which now “recommend” rather than “encourage” borrowers to seek input from an external third party as to the appropriateness of ESG KPIs and related targets. Also in March 2022, new guidance was published on the application of the Sustainability-Linked Loan Principles to Real Estate Finance transactions.

In July 2022, the Loan Market Association published its Introduction to the Sustainability Coordinator Role. This highlighted the varied scope of the role as well as documentary points to consider, such as whether it is appropriate to include protections for sustainability coordinators similar to those afforded to other finance parties.

The Loan Market Association also released a series of articles over the summer of 2022 intended to protect the integrity of sustainability-linked loans which focused largely on the selection of robust and material KPIs and related targets. The Loan Market Association announced the launch of a joint article with CarbonChain exploring how the sustainability-linked loan product can be used in trade finance in November 2022.

The LMA’s ESG initiatives were not limited to the sustainability-linked loan market. New Guidance on the Social Loan Principles was released in March 2022. This is to be read alongside the Social Loan Principles which were published in April 2021. The LMA also published new Guidance for Green, Social and Sustainability-Linked Loans External Reviews in March 2022. This explains the types of ESG external review available to the market together with minimum ethical and professional standards for the organisations providing these reviews. In October 2022, the LMA announced the launch of its second edition of the Guide for Company Advisers to ESG Disclosure in Leveraged Finance Transactions, produced in conjunction with the European Leveraged Finance Association.

The Basel Committee on Banking Supervision published the Basel 3.1 standards, commonly referred to as Basel 4, on 7 December 2017. The new standards are expected to increase regulatory capital requirements, particularly for certain larger firms, and will require adjustments to processes and systems accordingly. Among other things, the new standards (i) make changes to the standardised approach to credit risk which will affect reliance on external ratings, the treatment of real estate loans, undrawn commitments and certain specialised lending activities and (ii) reduce the ability to use internal models for certain exposure types and the benefits of using internal models more generally as opposed to using the standardised approach.

Basel 4 was originally expected to be implemented from 1 January 2022 (subsequently delayed to 1 January 2023 due to Covid-19), but is now set to be introduced from 1 January 2025 in the EU and UK. In the EU, this will be achieved through CRR3. In the UK, the Prudential Regulation Authority and HM Treasury are consulting on the implementation of the new standards. The consultation which contains the substantive Basel 4 rules closes on 31 March 2023. See also the ‘Outlook for 2023’.