LIBOR transition for investment managers has been saved
LIBOR transition for investment managers
Three impact areas to mitigate risk
The London Inter-Bank Offered Rate (LIBOR) is the reference rate used to determine the interest rate for over 350 trillion dollars of financial contracts around the globe. LIBOR underpins contracts affecting banks, investment managers, insurers, and corporates estimated at $350¹ trillion globally on a gross notional basis.
- What it means for investment management
- How Deloitte can help
- Get in touch
- Join the conversation
In 2017, the Financial Conduct Authority (FCA), which oversees the reporting of LIBOR, announced that by the end of 2021, they would no longer seek to compel or persuade panel banks to submit quotes for LIBOR making clear that reliance on LIBOR could no longer be assured beyond this date.
Planning for this change has been a global effort involving regulators, advocacy and trade groups, and financial institutions. In the US, the Federal Reserve Board (FRB), in cooperation with the Treasury Department and the Commodity Futures Trading Commission (CFTC), set up a working group of industry participants known as the Alternative Reference Rates Committee (ARRC) charged with identifying a robust alternative to USD LIBOR and with developing a plan to encourage its use in some derivatives and other transactions. The Secured Overnight Financing Rate (SOFR) was ultimately determined to be a suitable replacement for LIBOR.
Activity among the ARRC and industry members has increased, including increased issuance of SOFR-based notes, publishing several documents related to fallback language, and outlining key priorities and milestones in 2019 to support and prepare market participants for the transition away from LIBOR.
What it means for investment management
The LIBOR transition risk spans the economic risk of client portfolios, operational risk, funding risk, conduct risk, and legal risk. Given the importance of LIBOR across the financial services industry, the LIBOR transition poses significant transition risk if not addressed in a timely and comprehensive manner.
As such, investment management firms need to have appropriate strategic planning and risk mitigation initiatives in place, including:
- Development of program governance
- Business impact analysis
- Identification of risks and timely implementation of risk mitigation
- Coordination across portfolios/funds, functions and geographic regions
- Firm-wide risk assessment
- Development of strategic LIBOR transition roadmap for both investor and internal considerations
There are three specific impact areas:
How Deloitte can help
Deloitte Risk & Financial Advisory helps organizations navigate a variety of risks to lead in the marketplace and disrupt through innovation. With our insights, you can learn how to embrace complexity and accelerate performance.
Our professionals help organizations effectively navigate business risks and opportunities—from strategic, reputation, and financial risks to operational, cyber, and regulatory risks—to gain competitive advantage.
We apply our experience in ongoing business operations and corporate lifecycle events to help clients become stronger and more resilient.
Our market-leading teams help clients embrace complexity to accelerate performance, disrupt through innovation, and lead in their industries.
1 The transition risk spans the economic risk of client portfolios, operational risk, funding risk, conduct risk, and legal risk.
Successful LIBOR transition management strategies
Insights, news, and resources for managing LIBOR changes