Central Banks and regulators are continuing to increase their focus on IBOR transition to risk-free rates (RFRs). In June, the FCA and Bank of England published a joint statement stressing firms aren’t taking IBOR seriously enough. It went further to state that by now FIs should have a detailed risk assessment completed, a steering committee organised and a senior execute covered by the Senior Manager Regime (SMR) accountable for the transition.
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A clear transition policy for IBORs
In the treasury function, where interest rate risk and liquidity risk are managed on a daily basis for bank funding, a clear transition policy must be determined. Overall, a tightly governed transition programme coordinating efforts in the corporate, retail and investment banks across regions should be initiated. At the very least, it would be wise for banks active in the securities, lending, treasury and associated derivatives markets to investigate the exposure and dependencies they have on IBORs and to track their impact on day-to-day processes and operations. IBOR impacts far further across business areas than initially expected. From speaking with our clients and others in the market, we have learnt readiness is more challenging than anticipated.
Projective has extensive experience helping both UK and continental European clients with their IBOR programmes, building on our decade of experience helping FIs with large regulatory programmes such as MIFIDII and Brexit. This includes supporting complex client outreach and market participation. Specifically for IBOR, we have already been helping a number of FIs mobilise and positively position themselves for their transition to RFRs:
- Mobilising their IBOR programmes and establishing global governance.
- Comprehensive identification of their reliance on IBOR and portfolio impact.
- Developing granular transition plans, including alternative scenarios and introduction of fallback provisions.
- Identification and management of prudential and conduct risks associated with transition.
- Supporting and managing their role in market participation.
- Developing repapering and client outreach strategies.
- Impartially evaluating artificial intelligence/machine learning tooling to expedite contract analysis and repapering.