As we get closer to the end of 2021, banks are focused on contract repapering and client outreach activities, but there are significant resource and operational constraints ahead as banks align their front to back capabilities to accommodate for the differences in market conventions, methodologies, nuances by asset class, and synchronisation of data attributes. Anticipating a significant ramp up of activities over the last two quarters of this year is likely to cause significant capacity constraints and resource challenges across the industry. A lot of work remains to be done.
Throughout LIBOR transition, PwC has the opportunity to work with Financial Services firms and official sector organisations across the globe. Through our work we sensed a desire for market participants to understand better their own stage of readiness compared to peers, to exchange ideas on how to accelerate transition, and to have a forum to discuss the impacts of rapidly emerging market developments. In response, PwC conducted an online survey between 20 January and 24 February 2021. We asked participants from 52 global banks involved in the LIBOR transition on contracts and outreach, and systems change activities, to complete the survey. Following the survey, we aggregated the data to form an industry view and this formed the basis of the roundtables we hosted at the beginning of April 2021. The banks that participated in the survey and roundtables were from both Global Systemically Important Banks (G-SIBs) and local banks operating in the EMEA, Americas, and APAC.
59% of respondents expected to rely on Fallbacks for Derivatives. Repricing is the most expected remediation approach across all cash products.
As of January 2021, half or fewer than half of the respondents had begun client outreach at scale across the different assets classes.
All respondents agreed Relationship Manager education and clarity in communications on key features is how conduct risk is predominantly managed when transitioning clients. Other areas that scored highly included having a strong conduct risk framework, actions and metrics.
Nearly 50% of respondents have used the LIBOR contract remediation opportunity as a catalyst to develop a digitised contract inventory or standardise their legal documentation.
A significant amount of work being done is manual - from contract review, the implementation of controls to prevent new LIBOR, and the tracking of fallbacks in legacy contracts.