LIBOR Transition

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.

To find out more about how to reduce disruption and get ready for change, watch our LIBOR video.

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How we can help

Regulatory expectations and relationships

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:

  • Do we have the right level of understanding of the regulatory landscape to fully appreciate the implications of regulatory statements on the LIBOR transition for our organisation?
  • Do we have the right level of understanding of the regulatory landscape to fully appreciate the implications of regulatory statements on the LIBOR transition for our organisation?
  • Are our relationships with supervisory teams sufficiently strong?
  • Are we able to anticipate when regulatory supervision might intensify and what this might mean operationally?
  • Can we respond to information and data requests from the regulator in a timely manner?

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.

Programme governance and impact assessment

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:

  • Has an appropriate governance structure been put in place and how will the stakeholder involvement evolve throughout the transition?
  • Is there a clear transition strategy that maps to the timelines, activities and resource requirements from which key decisions will be made?
  • Have the financial exposures across the organisation been clearly identified to define the approach to the transition?

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.

Front office and new product strategy

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:

  • How can we be ready to meet client needs in new RFR products and win market share from our competitors?
  • Have we got the right plans, execution capability and risk management to transition our legacy business from LIBOR to RFRs?
  • Do we have the data and insights to support our clients and our firm through LIBOR transition?

Contract management

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:

  • How many contracts are affected by LIBOR, where are they, what type, and which counterparties need to be contacted?
  • What data protection and privacy issues could potentially limit sharing of contracts and supporting data across territories?
  • What is the optimal technology setup, choosing between options including building on-premise, using cloud technology or outsourcing to a third party?
  • How can the process be resourced considering the substantial amounts of legal expertise required?

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.

Find out more

Client and customer outreach

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:

  • How can contractual changes with clients be effectively communicated and negotiated at scale and with pace?
  • What internal data and processes need to be mapped and initiated to ensure the correct messaging and relevant signing authority has been obtained before arranging for outreach execution?
  • How can client and internal queries be efficiently managed?
  • How can outreach be tracked for internal reporting as well as audit compliance purposes?

We work with you to set a communication strategy for customers, regulators, investors, and company personnel that outlines the transition plan and status.

Risk and valuation model changes

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:

  • Has the impact on models been analysed? Has the appropriate categorisation and prioritisation for remediation been put into place?
  • Can the remediation and validation of models be done with current resources in the time available?
  • What is the best way to resource the increased demand to remediate, retest and revalidate all models affected by LIBOR?

We can help you identify, prioritise and validate all pricing and risk management models required to switch from LIBOR to new rates.

Find out more

Business process and system change

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:

  • Is there a comprehensive view of the end to end business process and systems and the relevant impacts as a result of IBOR changes?
  • In a remote working environment, how are resources ready to make changes to processes, and the underlying policies, procedures, controls and systems impacted by LIBOR transition?
  • How will awareness of these changes be built and communicated across the organisation?
  • Are organisations thinking through tactical solutions while discussing strategic options in preparation for vendor discussions on release upgrades/ replacements?
  • Could LIBOR Transition act as an opportunity to think through strategic infrastructure changes to help simplification and standardisation to aid reducing costs?

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.

Find out more

Managing tax and accounting implications

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:

  • What are the accounting implications of modifying the existing hedge strategies triggered by the LIBOR transition?
  • Could LIBOR transition act as an opportunity to assess the longer term tax impact of financial products and make additional changes to contracts and/or policies?

We work with institutions to optimise overall tax efficiencies beyond just the LIBOR Transition impact.

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Contact us

Andrew Gray

Andrew Gray

Partner, LIBOR Transition

Tel: +44 (0)7753 928494

Nassim Daneshzadeh

Nassim Daneshzadeh

Partner, UK LIBOR Transition proposition Client & Markets Lead

Tel: +44 (0)7850 515679

Karyn Daud

Karyn Daud

Partner, UK LIBOR Transition proposition Solutions Lead

Tel: +44 (0)7795 617469

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