The Alternative Reference Rates Committee (ARRC) recently published practical considerations for the transition from LIBOR, and that additional information may be useful to certain firms that have not yet fully commenced taking steps to transition. The ARRC’s “Practical Implementation Checklist for SOFR Adoption” or “Checklist” was developed as an informational document for market participants.
The following is a simplified version of the practical implementation checklist:
- Establish Program Governance: Implement a robust governance framework with accountable senior executives to oversee the delivery and coordination of the firm’s enterprise-wide LIBOR transition program.
- Develop Transition Management Program: Establish an enterprise-wide program across functions and businesses to evaluate and mitigate the risks associated with transition with specific considerations for unique product and client exposures.
- Implement Communication Strategy: Develop and implement an enterprise-wide strategy with clear objectives to proactively engage, consistently communicate, and increase levels of education with impacted internal and external stakeholders.
- Identify and Validate Exposure: Quantify and develop a flexible approach to monitor LIBOR-linked exposures through the transition period. Obtain or develop capabilities to value SOFR-based products as part of transition to using those products.
- Develop Product Strategy: Develop strategy for redesigning or transitioning the existing portfolio of LIBOR products, including creating or using new products based on SOFR.
- Risk Management: Identify, measure, monitor, and control financial and non-financial risks of transition, establishing processes and oversight routines for ongoing management.
- Assess Contractual Remediation Impact and Design Plan: Understand the financial, customer, and legal impacts resulting from transitioning from LIBOR to SOFR via fallbacks, and plan mechanisms for implementing.
- Develop Operational and Technology Readiness Plan: Develop a plan to address the large-scale operating model, data, and technology implications required for LIBOR transition.
- Accounting and Reporting: Determine accounting considerations along with related reporting considerations.
- Taxation and Regulation: Determine the tax and regulatory reporting considerations.
For more information on the checklist, visit: www.newyorkfed.org/medialibrary/Microsites/arrc/files/2019/ARRC-SOFR-Checklist-20190919.pdf