RFR Transition – (L)IBOR migration

The impact of the replacement of Interbank Offer Rates or IBORs is far reaching both geographically and by the sheer volume and diversity of products that use them as benchmarks (estimated 300 trillion USD equivalent).  Moreover, the operational impact to the banks, asset managers, insurers and their respective clients that issue, sell and manage IBOR benchmarked products will be significant.

Of the US$300 trillion of product using IBORs as reference rates, the market estimates 18% are products that mature after end-2021. Firms therefore need to assess the risks and impacts to these products and formulate a strategy to remediate.

Firms face the following challenges:

  • Business
    • Contractual – fall-back clauses in financial products that reference IBORs typically only cater for situations where the IBOR is not available for a short period of time
    • Delta between old IBOR and new RFR
    • No term rates
  • Operational / Technology
    • Repapering
    • Processing the contractual changes and client engagement
  • Regulatory
    • European Central Bank – Benchmark Regulation (“BMR”) and the phasing in of the Euro Short-Term Rate (“ESTER”)
    • Direction from the FCA/PRA in the UK, the FED and the ACCR in US and direction and associated working groups from the Swiss and Japanese central banks

Not all firms based in the UK will be required to respond to the FCA and PRA but all firms need to get their planning underway by organising their agendas and will have to draft a roadmap. In the short term, the focus will to be on change programme mobilisation and impact assessments, followed by a transition programme roll-out.

At The Field Effect we specialise in financial market change and transformation, Target Operating Model design and can help you identify how process, function, data, technology, people, revenue, and controls work together in order to deal with the challenges ahead and accelerate the delivery of change.

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