Interbank Offered Rates (IBORs), most prominently the London Interbank Offered Rate (LIBOR), have served for decades as globally accepted key benchmark interest rates that indicate borrowing costs between banks for major currencies and defined terms.
LIBOR is due to be phased out by the end of 2021, but it is so deeply embedded in financial products that the transition may pose more questions than answers.
The LIBOR transition is market-led and relies on collaboration among market participants, infrastructure operators, trade associations, central banks and regulators for seamless adoption of alternative risk-free rates (RFRs).
Our Capital Markets Advisory Partner, John Da Gama-Rose, recently took part in a panel discussion to explore the current state of the LIBOR transition. Key topics discussed include programme governance, new product development and legacy portfolio migration, as well as the interdependencies with the Fundamental Review of the Trading Book (FRTB).
Meeting the 2021 deadline and overall market readiness was a key concern, and we would like to open the discussion to a wider audience. As such, we are asking firms to share their experiences and challenges they face through our survey below.
Gaining a clearer picture of the current state can help identify where greater support is needed, to facilitate a smooth transition and avoid a cliff edge situation in 2021, where LIBOR is no longer produced but inadequate arrangements have been made for a replacement rate.
The story so far
The G20 and the Financial Stability Board mandated IBOR reform in 2014. In 2017, the Financial Conduct Authority (FCA) set a date of 2021 by which it will no longer compel banks to submit LIBOR quotes.
Over $350 trillion dollars’ worth of financial derivative contracts, bonds and mortgages, as well as retail and commercial loans, have their interest tied to LIBOR indices. Market-led transition has been progressing in several jurisdictions, principally the UK, US, EU, Switzerland and Japan, where alternative risk-free reference rates have been agreed and liquidity has been developing.
The IBOR transition has gained momentum since major banks and insurers in the UK received 'Dear CEO' letters from the FCA and Prudential Regulation Authority (PRA) last year, asking for their preparation and actions to manage the transition to risk-free rates.
We want to use this opportunity to take stock of the industry’s progress, transition readiness and approach, the remaining challenges and the way forward to deliver a successful transition. Navigating the transition to alternative RFRs requires industry collaboration, as well as significant re-engineering and a coordinated, multi-disciplinary approach.
Run in association with ACI UK, Chartered Institute for Securities & Investment (CISI) and Dantum Consulting, the panel discussion, available below, explored these issues and the challenges of moving to RFRs.
ACI UK and CISI - Libor Migration Panel
David Clark, Honorary President of ACI UK and Chair, European Venues and Intermediaries Association
Tom Hicks, Chair of the Society of Technical Analysts and Director of Dantum Consulting
John Da Gama-Rose, Partner, Head of Capital Markets Advisory, Grant Thornton UK LLP
Have your say
As an industry led transition, we want to hear from participants across the financial sector, non-financial corporates and public sector organisations to help us understand the unique challenges faced. Collaboration is key to establishing workable outcomes and fully understanding the issues is the first step.
We have launched a LIBOR transition survey to take stock of transition progress. The survey will take you 8-10 minutes. Data is gathered anonymously and reported at an aggregate level.