The end of LIBOR : are you ready?


This month, major banks and insurers must convince regulators they have a “robust written plan” to move away from LIBOR. But the request from the PRA and FCA should serve as a reminder to anyone who uses LIBOR or any other index to make sure their preparations for the demise of LIBOR are underway, and that their obligations under the EU Benchmarks Regulation are met.

Following a series of rate-rigging scandals, the EU Benchmarks Regulation was brought in to regulate the management of, and use of all indices. LIBOR is particularly hard-hit: The Bank of England has stated that it will no longer compel banks and insurers to submit rate estimations for inclusion in the LIBOR benchmark after 2021, and that it expects users to adopt alternative benchmarks based on transaction data, rather than estimations. So, if you’re a user of LIBOR or any other index and unsure of what these changes mean to you then read on.

The FCA and PRA reaffirmed their deadline in the September ‘Dear CEO’ letter and particularly addressed large banks and insurers, who by the 14th of December must provide:

  • a board-approved summary of the firm’s assessment of key risks relating to LIBOR discontinuation
  • details of actions they plan to take to mitigate those risks
  • identification of senior managers who will oversee the provision of the response to the letter and the implementation of transition plans

Assessments and plans should consider a wide range of scenarios and impacts. They must also include a quantification of LIBOR exposures.

All LIBOR users must comply under the EU Benchmarks Regulation

It’s not just the major banks and insurers that need to take notice. The “Dear CEO” letter points out all LIBOR users (and users of any other index) are required, under the EU Benchmarks Regulation, to have a ‘robust written plan’ for handling a material change to it, or its cessation. Tellingly, the regulators also ask those other users to ‘read and reflect’ on the letter. So, if that’s your firm, it makes sense to make at least some of the same preparations.

Preparing for LIBOR changes – whatever they are

The Bank of England has clearly stated that LIBOR-cessation should be treated by institutions “as something that will happen and which they must be prepared for”. However, there’s some doubt as to whether LIBOR will in fact be ‘switched off’, and some banks have expressed interest in continuing to provide data to LIBOR.

Given this uncertainty, many LIBOR users are preparing for at least three possible scenarios:

  • complete and instant LIBOR cessation
  • a transition period (either gradual rollover as contracts expire, or a combination of this and renegotiation with clients)
  • LIBOR continuation

In each case, significant work will likely be required within firms and clients to:

  • quantify the extent of exposure
  • define and describe the risks resulting from the scenarios above
  • define and document mitigation plans

How Bovill can help

Bovill can help with all aspects of your preparation. Whether you’re a bank, an insurer or an asset manager, we can help – from managing the whole project to supplying additional technical expertise to complement your own or to speed things up. Our extensive experience of benchmarks means we can streamline the process and make sure nothing is overlooked.

Get in touch with our benchmarks experts to find out more.

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