With the transition away from LIBOR due to take place next year, what’s the appropriate response amidst COVID-19?
LIBOR is still largely associated in the public mind with the 2012 scandal that eventually led to the Financial Conduct Authority announcing its fading out by the end of 2021.
With the replacement of the London Interbank Offered Rate by a range of alternative Inter-Bank rates, $300tn worth of financial contracts need to be examined for LIBOR references and amended.
Working out which contracts contain potential liabilities is tricky though. With every financial services institution holding thousands of contracts, each running to hundreds of thousands of pages, performing the tasks manually could take one person their entire working life. The regulatory risk described as being ‘bigger than Brexit’ has now become even bigger, because of COVID-19.
Challenges emerging from COVID-19
There is enormous pressure on financial services as a whole right now and PwC are seeing its banking and insurance clients deal with a range of issues. From increasing defaults to an acceleration in the decline of cash usage, there are urgent issues to address.
LIBOR reform hasn’t gone away though and with the regulator sticking to deadlines, part of PwC’s Operate delivery division - Contract Solutions - responded by condensing their active programme timelines nine project plans - freeing them up to respond to COVID-19.
"For our insurance and banking clients the crisis means a focus on serving their customers in order to maintain trust levels until it abates. They still need to keep their regulatory commitments on the agenda though."
Agility in the face of COVID-19
Faced with the Government’s 16 March direction that everyone who could work at home, should, Operate moved its 1,500 people to homeworking overnight, seamlessly.
Manager Imogen Philp says the way the team usually works has prepared them for the situation the financial services industry now finds itself in.
“Operate prides itself on its agility and very often mobilises teams to help clients within 48 hours. In response to an urgent COVID-19 related piece of work we recently stood up a team on a Saturday, to start on a Sunday morning.
“Our team in particular works with clients in investment banking - an industry that’s extremely fast moving. Our clients’ priorities often change as a result of internal issues or because of external factors affecting the market and we have to be in a position to support them.”
The right tech
At the start of the lockdown the team was working through 125,000 documents using its eBAM tool. This key digital accelerator clusters and contextualises references within contracts,helping condense more work into a shorter time period, according to Imogen.
She said: “This smart tech can group contracts by category and, taking account of their context, we can compress timeframes and provide greater assistance to our clients in meeting their LIBOR obligations."
Keeping LIBOR on the agenda
Imogen continues: “Many of our clients are understandably needing to devote more time to their own response. For our insurance and banking clients this means a focus on serving their customers in order to maintain trust levels until the crisis abates. They still need to keep their regulatory commitments on the agenda though and we’re continuing to help them do just that.”
“But we’re also seeing some using this time to think more proactively about the contracts they hold and what they need to do with them, whether in response to regulatory change or market demands.”
Find out more
How else is Operate helping organisations respond to COVID-19? Read Ian McConnell’s blog to find out.
Contract Solutions Lead, PwC United Kingdom
Tel: +44 (0)7826 946177