The scandal-hit London Inter-bank Offered Rate will be replaced by 2022.

The U.K.'s transition away from using Libor, the agreed interest rate at which banks lend to each other, is set to generate a flood of disputes, leading legal advisers believe.

Market regulator the Financial Conduct Authority released a set of documents outlining the transition plan on Thursday, with the scandal-ridden benchmark rate set to be phased out by the end of 2021.

But lawyers think the changeover to new benchmarks will create a rise in litigation.

"With such large amounts of money at stake, across the spectrum of financial products – including loans, bonds and derivatives – the risk of litigation is very real," said Chris Ross, banking and finance partner at RPC.

"The outstanding stock of Libor instruments has grown substantially since the Bank of England confirmed the shift to [new benchmark rate] Sonia which just adds to the complexity of the transition.

"If a contract is switched from Libor to Sonia then there is a very high chance that one party or other will lose out – the only question is how big that difference will be."

Speaking to Law.com's U.K. arm Legal Week, Hogan Lovells partner Arwen Handley agreed that the transition from Libor is a "massive undertaking" as the rate is "so entrenched in so many aspects of business".

"There will inevitably be an increase in disputes", Handley continued. "If firms don't prepare, they will be caught short and in quite a bit of trouble".

"With all the moving parts and uncertainty, you can see potential for all kinds of issues"

"A lot of firms have got massive transaction projects on the go, and with two years to go people will have made great strides", she added. "But there will still be areas that are difficult. With all the moving parts and uncertainty, you can see potential for all kinds of issues."

Libor is based on bank estimates of lending rates according to transaction history and also including other factors, but other benchmarks are based solely transaction history, which may cause problems, according to Handley.

"You're moving the whole market from a reliance on Libor, to a backward looking rate which is fairly and squarely based on actual transactions, and which doesn't incorporate credit risk", Handley said. "What's right on some instruments might not work on others".

"People have to come up with the answer and if they can't agree, they'll have to litigate"

Christopher Kandel, finance partner at Morrison & Foerster said that the FCA's announcement demonstrates that "this [transition] is definitely going to happen".

With all benchmarks however, there are complexities regarding the time period and the level of credit risk involved.

Kandel added that "U.S. loans have other interest rate options such as base rate, federal funds rate and the like that make disputes there less likely". In Europe however, the interest options in loans has traditionally been Libor or the lender's cost of funds where Libor is unavailable. Kandel explained that deviation from this "originally required the consent of all lenders (and the borrower) to modify by amendment."

He highlighted that the derivatives market is moving quicker towards using overnight rates, while the European loan market is sticking with Libor, with the main focus on "making the circumstances in which that amendment happens easier to trigger".

"What it would and should be amended to is the open question in Europe, and that is what I am not seeing any progress on in the loan world in Europe.

"It likely will be a risk free rate plus something (the credit and possibly time spread), and it is the 'something' where I have seen no progress in the market agreeing what that should be."

He said it is "hard to tell if legal disputes will be high", but "people have to come up with the answer and if they can't agree, they'll have to litigate".