The transition to new global risk-free rates will be a significant change and a profound transformation for the financial markets. KPMG’s Evolving LIBOR overview summarises some of the challenges that lie ahead and how firms can start to plan and manage the transition successfully.
Interbank offer rates (‘IBORs’) are systemically important benchmarks underpinning many contracts within the financial sector globally. There are estimated to be over $370 trillion contracts currently referencing them from US retail mortgages to derivative contracts and corporate loans.
Following the OSSG recommendations in 2014 to move the industry towards new risk free interest rate reference rates (‘RFR’s’) the industry has been developing proposed new reference rates. In 2017 the Financial Conduct Authority (FCA) confirmed it will no longer compel banks to submit data to LIBOR (London IBOR) post 2021 resulting in a clear impetus and need to implement these alternative RFR benchmarks globally.
KPMG’S Evolving LIBOR overview summarises: