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IBOR transition

IBOR transition

IBOR transition

IBOR what is changing?

Interbank offer rates (IBORs) are systemically important benchmarks, underpinning many contracts within the financial sector globally (not only derivatives contracts, but any type of financial instrument in the market).

Following the Financial Stability Board (FSB) recommendations in 2014 to enhance the robustness of benchmark indices, the industry has been developing new risk free reference rates (RFRs). These RFRs have been designed to overcome the pitfalls of IBOR rates, in particular to minimize reliance on expert judgement and ensure a better reflection of the risk free rate.

In 2017 the FCA confirmed that it will no longer compel banks to submit data to LIBOR post 2021. For EU Member States, the European Commission adopted the “European Benchmark Regulation” in 2016. Both Euribor and Eonia were considered to be non compliant with this regulation and need to be reformed (or discontinued) by 1 January 2020.

What are the key challenges?

What are the key challenges?

What do banks need to do?

Firms need to assess the impact of the transition across their products, clients and infrastructure. While uncertainties on final (technical) details of the “future” benchmarks still exist, it is essential to prepare now in order to be ready for different scenarios and have a clear understanding on potential impacts of each scenario. The impact will not be limited to derivatives, but will also affect the way banks organize their daily operations. It is therefore key to consider this impact across the whole organization and to cover key functions: Sales & Trading, Operations, Risk & Valuations, Treasury, Legal and Compliance.

The differences in approach and timing across the US, UK and Europe will require a well coordinated program of activities to ensure changes are aligned.

Business graph

Developing a clear timeline

There is a clear impetus to make the change up to 2020/2021. Timelines are being developed, but there are going to be variations across jurisdictions. It is key to ensure that internal timelines are aligned with regulatory timelines.

Flags

2018: Mobilization & Preliminary Study

  • Project initialization
  • Identification of impacts and requirement analysis
  • Planning of implementation period

2019-2020: Implementation

  • Contract adjustments and customer contact
  • IBOR Change Program

Post 2020: Product Conversion & Functionality

  • Sequencing of product change
  • Assessment of project progress
  • Testing and assessment of functionality and need for adjustments

We can support you in this process

We can guide you through this process and help you in each phase of the transition plan. Typical support includes:

  • Creation of a project governance and structuring of work streams according to leading practices
  • Gap analysis and impact assessment supported by our technical experts in front to back processes of your business
  • Review of contractual details and required amendments by our experts in financial law
  • Project management and PMO by our experts in large transformation projects
  • Development of tools and artificial intelligence algorithms (e.g. involvement of Machine Learning, experts and tools for automatization of analyzing of contracts)

 

You can benefit from our international network of member firms

  • A global working group on “IBOR Reform“ is in place, piloted by our UK and US member firms, and supplies us with leading practices and market insights from ongoing projects.
  • The reforms within the US and UK have already taken the next step since alternative benchmarks have been completely defined – we therefore use the experience of our global colleagues

 

Approach tailored to your needs and your exposure to IBOR (from “quick scans” requiring only limited budget to detailed impact assessment on your whole value chain and definition/implementation of transition plans).

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