LIBOR transition

Regulators globally have signalled that firms should transition away from the London Interbank Offered Rate (LIBOR) to alternative overnight risk-free rates (RFRs). Andrew Bailey, Chief Executive of the UK Financial Conduct Authority, has stipulated that this should happen by the end of 2021.

However, the rate is so embedded in the day-to-day activities of providers and users of financial services that completing transition will be a complex and time consuming task which could give rise to major risks for firms and their customers. It is vital that Boards take action now, but how do they navigate these issues, against a backdrop of uncertainty, and deliver one of the (if not the) biggest transformation projects they have ever faced? This report is designed to help Board members and executives understand what is needed to drive transition.

In this report, we examine the three steps that, in our view, Boards should consider.

Step 1: Mobilise a cross-business unit and geography transition programme with C-level sponsorship

We provide an illustrative governance framework for LIBOR transition and examine what makes this transition different and how this could affect programme governance.

Step 2: Set out a transition roadmap

Four key blocks of activity will make up the transition programmes:

• identifying financial exposures and defining the approach to transition;
  
• launching RFR-linked products and building RFR volumes;
  
• transitioning the back book/legacy trades; and
  
• switching off LIBOR processes and infrastructure.

We set out important considerations for Boards when mobilising the workstreams within these blocks.

Step 3: Identify the risks and implement potential mitigants early

There are significant risks for LIBOR transition that the Board needs to be confident are being addressed. These include: the creation of “winners and losers” resulting in reputational damage and claims by clients for redress; clients’ unwillingness to transition, resulting in LIBOR exposures continuing to grow; and the effects on financial performance which may result in shortfalls against financial plans.

We examine the risks and highlight potential mitigants to address them.

The Deloitte Centre for Regulatory Strategy

The Centre for Regulatory Strategy is a source of critical insight and advice, designed to help clients to anticipate change and respond with confidence to the strategic and aggregate impact of national and international regulatory policy.

With regional hubs in the Americas, Asia Pacific and EMEA, the Centre combines the strength of Deloitte’s network of experienced risk, regulatory, and industry professionals—including a deep roster of former regulators, industry specialists, and business advisers—with a rich understanding of the impact of regulations on business models and strategy.