IBOR Transition – LIBOR’s Final Countdown

Subash Srinivasan, senior manager, Ernst and Young LLP, provided an update on where the international effort to replace the LIBOR benchmark stands, and the latest on what financial institutions must do to prepare for the coming conversion to an alternative reference rate during RMA’s Risk Readiness Webinar.

The transition from LIBOR will occur over the next two years, coming to completion at the end of 2021. In June 2017, the Alternative Reference Rates Committee (ARRC) identified Secured Overnight Financing Rate (SOFR) as its preferred ARR to the USD LIBOR after extensive analysis. The benchmark is based on a large volume of transactions in the overnight bilateral, tri-party, and Treasury repurchase agreement markets and meets IOSCO standards (IOSCO compliant). The Federal Reserve Bank of New York began publishing SOFR on April 3, 2018.

Srinivasan stated that effective transition from LIBOR will be best supported by a robust governance structure with senior management accountability and monitoring to oversee the delivery and coordination of the enterprise wide program. There needs to be clear ownership and accountability in the businesses and functional areas for implementation. He also suggested that a central IBOR transition office may provide centralized management, coordinated strategy, planning, budgeting, steering and oversight.

In addition to governance and program management, Srinivasan indicated that developing an enterprise communications strategy can support an institution’s ability to deliver consistent messaging and communication across various internal and external stakeholder groups and is an important part of many IBOR programs. Equally important is the institution’s ability to identify, measure, monitor, and control the financial and non-financial risks associated with the transition, as well as developing a model transition plan across the three lines of defense.

Srinivasan shared an implementation checklist published by the ARRC to provide clarity on the practical considerations for the transition from LIBOR. For the full presentation, purchase a recording here.

Join us for upcoming offerings of the Risk Readiness Webinar Series.

 

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