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Moving to new risk-free rates: A Canadian perspective

Moving to new risk-free rates: A Canadian perspective

Why asset managers need to prepare for the transition from IBORs

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Regulators are focused on the implications of transitioning to the new risk-free rates (RFRs). This paper highlights the factors impacting the industry, what buy-side firms should consider and where they should start. The UK's Financial Conduct Authority (FCA) announced that it will not compel or persuade panel banks to make LIBOR submissions after the end of 2021, which unleashed a flurry of activity around not only choosing alternative reference rates, but also developing the roadmap needed for transitioning to the new RFRs.

There is a pressing need for the financial industry to tackle the challenges of interest rate benchmark reforms, as the legal validity of existing financial instruments and contracts could be called into question, and changes in reference rates could lead to significant portfolio reallocations.

Here in Canada, the Alternative Reference Rate Working Group has released guidance of fallback language and RFR methodologies. With a majority of sell-side firms already planning for the transition, KPMG professionals have so far seen fewer buy-side firms thinking about the impact the transition will have on their clients' portfolios, and their agreements with counterparties and provider agreements.

We're pleased to discuss how moving to new risk-free rates will impact your organization, or any other business issue with you.

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