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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.


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

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1 The transition risk spans the economic risk of client portfolios, operational risk, funding risk, conduct risk, and legal risk.