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Preparing for LIBOR transition: Three steps for boards

Successful LIBOR transition management strategies

Regulators have signaled the need for firms to transition from LIBOR by the end of 2021. Given the degree of uncertainty and complexity, the transition is likely to be one of the biggest transformation programs many firms will have undertaken.

Mobilizing for a post-LIBOR world: An update and lessons learned

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LIBOR transition

Regulators globally have signaled 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 United Kingdom 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, from Deloitte UK, is designed to help board members and executives to understand what is needed to drive the transition.

Three steps boards should consider

Step 1: Mobilize a cross-business unit and geography transition program 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 program governance.

Step 2: Set out a transition roadmap

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

  • 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 mobilizing 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.

About the Center for Regulatory Strategy

The Deloitte Center for Regulatory Strategy is a powerful resource of information and insight, designed to assist financial institutions in managing the complexity and convergence of rapidly increasing new regulation.

With regional hubs in the AmericasAsia Pacific, and EMEA, the Center combines the strength of Deloitte’s regional and international 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.

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