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Reduce disruption, streamline processes and improve agility. Prepare your firm for change.
The London Interbank Offer Rate (‘LIBOR’) will cease to be in effect from 31 December 2021. Financial institutions and the users of financial products which use LIBOR to price these products must act to protect their business from the financial shocks which may result from an unmanaged transition to alternative reference rates. Regulators expect firms to act now to plan and implement the necessary changes to manage the complex transition.
For many, delays could mean disruption to operations, performance and profits. However, leading firms will benefit from the transition’s changes by using the opportunity to make strategic decisions, enhance client relationships, take advantage of technological solutions, manage risks, and create commercial opportunities. The task of transitioning away from LIBOR is a complex and transformational programme, and is currently underway. Is your firm ready?
Along with our team of dedicated LIBOR professionals, technology and sector expertise, we can help you find ways to progress and succeed - even in periods of uncertainty. To deliver meaningful change, we can work with you to implement the following key components of a comprehensive LIBOR transition plan.
Understanding regulatory expectations around LIBOR and managing your relationship with regulators through the transition are important to achieving successful outcomes. In particular, you should be considering:
Our relationships with the PRA, FCA and other regulators, and our understanding of the broader regulatory environment means we can help you interpret regulatory statements on the LIBOR transition. We can also advise you on how to build relationships with regulators where this may be necessary.
It’s important to establish and manage a program governance structure with appropriate executive leadership, including stakeholders from impacted businesses and functions across the company. Impact assessments and governance plans should look to answer a broad range of questions including:
We help you manage and monitor transition progress whilst also conducting comprehensive assessment to identify areas of exposure and develop a strategy for remediation activities.
Transitioning away from existing LIBOR rates into new Risk Free Rate (RFR) markets will have an impact across your entire product range. Firms will need a strategy to tackle the dual challenges of bringing new RFR products to the market and reducing the exposure to LIBOR in their backbooks. The strategy should consider questions including:
Your transformation could involve switching potentially hundreds of thousands of LIBOR-based contracts to RFRs. To help ensure a smooth contract remediation process, you must start to consider the following:
To help you tackle LIBOR contract remediation as accurately, quickly and cost-effectively as possible – and with the minimal disruption to business as usual – we provide global and local solutions that combine legal, regulatory and technology expertise, supported by deep industry-specific knowledge and experience. We work with you to identify, amend and digitise all relevant contracts and negotiate new terms with counterparties at speed.
For companies that offer LIBOR-linked financing, developing a plan to manage complex customer outreach is imperative to ensure customers are treated equitably. The following aspects should be taken into account:
We work with you to set a communication strategy for customers, regulators, investors, and company personnel that outlines the transition plan and status.
LIBOR rates are deeply integrated into financial institution’s models, front-to-back, with potentially many hundreds of models requiring amendment and revalidation per institution.
These models affect a wide range of business-critical areas, from trading to risk management to capital adequacy calculations. As a result of the LIBOR deadlines, validation teams will face a wave of remediated or new models requiring validation, touching all parts of the bank including trading products, banking book, risk management and capital governance and oversight. Other aspects of the transition, such as contract remediation, have previously had all of the focus, but the implications for models need to be considered including:
We can help you identify, prioritise and validate all pricing and risk management models required to switch from LIBOR to new rates.
During the transition, all impacted business processes and systems will need to be enhanced. An integrated timeline and resource requirements needs to be developed to ensure an orderly transition across the different asset classes, functions, processes and systems:
We’ll help you build operational readiness across your business and systems landscape, by supporting your LIBOR change programmes across business processes, infrastructure and systems, as well as quality assurance and testing.
Determining the impact of new tax, accounting and reporting standards will facilitate targeted change and allow you to take full advantage of the relief provided. Companies should look to answer a broad range of questions including:
We work with institutions to optimise overall tax efficiencies beyond just the LIBOR Transition impact.