The Financial Stability Board (FSB) has published a global transition roadmap for LIBOR that sets out a timetable of actions financial firms should take to ensure a smooth transition from LIBOR to other risk-free rates by the end of 2021. The data management task of transition remains a huge challenge for many firms, but it can offer significant and ongoing benefits for firms that get it right.
Publication of the roadmap follows FSB affirmation in July 2020 that financial firms across all jurisdictions should continue their efforts to make wider use of risk-free rates to reduce reliance on IBORs where appropriate and in particular to remove remaining dependencies on LIBOR by the end of 2021.
The roadmap advices:
- Firms should have already identified and assessed all existing LIBOR exposures and agreed on a project plan to transition in advance of end-2021
- By the effective date of the ISDA Fallbacks Protocol, (which has not yet been triggered but will be used to replace IBOR exposures with risk-free rate linked alternatives in derivatives contracts), the FSB strongly encourages firms to have adhered to the protocol
- By the end of 2020, firms should be in a position to offer non-LIBOR linked loans to their customers
- By mid-2021, firms should have established formalised plans to amend legacy contracts where this can be done and have implemented the necessary system and process changes to enable transition to robust alternative rates
- By end-2021, firms should be prepared for LIBOR to cease.
We have covered the scale and data management challenges of LIBOR transition in previous blogs and many firms are still struggling to meet the deadline, but there are solutions that can advance transition programmes and provide ongoing benefits.
ASG Technologies has developed best practices and automation for the transition based on data lineage that can track and trace instances of LIBOR rates across an organisation. These instances can then be assessed to discover the impact of change from LIBOR to other rates.
Sue Laine, vice president of strategic technologies at ASG, says: “This is a big data management project that needs an holistic view and transparency across all systems back to mainframes. You need the business and technology to work together to understand the impacts of change and avoid drastic changes hitting the bottom line.”
She adds: “This is not a one-time effort. If you sustain the project you will be able to manage critical data across the organisation. You will also benefit from the by-products of the data management project.”
Laine says the benefits of using automation or data lineage for the transition include:
- A well-defined, common approach to changing LIBOR rates across the company
- Tracking and tracing LIBOR lineage will give you a predictive model for rate changes
- Validation that the new rates are being used in a consistent way – consider multi-rates used across regions
- Validation of downstream impacts – in areas such as liquidity, tax implications, and general financial product revenue.
She comments: “Very soon, clients will be looking for accelerators for repiping, lineage is the accelerator.”
Considering the data management benefits and by-products of using a solution to resolve LIBOR, Laine lists:
- Reducing footprint – identifying data at rest and minimising your application and data ecosystem
- Pinpointing complexity – mass scanning of applications and mainframes will reveal what is really happening underneath the data
- Debloating the data environment – a scan of the data will show redundancies, old and unused data
- Multi-attestation requirements – clients will be able to use the lineage to attest to other regulatory requirements on an ongoing basis.