Imagine how crazy and disruptive it will be transitioning away from LIBOR !
because every financial:
Product | Agreement | Document | Disclosure | Data | Calculation | Forecast | Valuation
Model | Operation | Technology | Framework | Platform | Policy | Procedure | Reporting
... that is linked to LIBOR, directly or indirectly, will require an update or remediation.
Who's saying that it's a big problem?
Andrew Bailey, Chief Executive, Financial Conduct Authority
“And for firms who are not yet aware, not yet engaged, and without plans to address their LIBOR-related dependencies, I warn you again of the risks.”
Michael Held, Executive Vice President and General Counsel, Federal Reserve Bank of New York
“This is a DEFCON 1 litigation event if I’ve ever seen one... a “situation that invites litigation” that “would be on a massive scale.”
John C. Williams, President and Chief Executive Officer, Federal Reserve Bank of New York
“Some say only two things in life are guaranteed: death and taxes. But I say there are actually three: death, taxes, and the end of LIBOR.”
Linda Lacewell, Superintendent, NY State Department of Financial Services
"....the Department requires that each regulated institution submit a response to the Department describing the institution’s plan to address its LIBOR cessation and transition risk."
Why do regulators and experts envision the transition and conversion to be problematic?
1. SOFR is very different from LIBOR -- conceptually, economically, transactionally, and operationally
2. SOFR will transform every institution's market risk profile and financial forecasting, thus requiring new limits, policies, procedures, controls
3. SOFR will require changes to product design, risk models, valuation tools, hedging strategies, payment systems, and many more aspects
4. Interdependencies between lenders/customers/vendors will create huge challenges to implement operations and technology resolutions
Financial Institutions need to ask themselves 3 important questions for LIBOR transition:
1. Are we INFORMED comprehensively about the risks and impacts of Transition and Conversion to our institution?
2. Are we STRATEGICALLY prepared to accomplish Transition and Conversion for our institution?
3. Are we OPERATIONALLY capable to conduct Transition and Conversion at our institution?
For most mid-size and small institutions,
the answer to at least one of these questions
is going to be, "NO".
And so, the NY DFS wants assurance that corporate boards, CEOs, CFOs ask their teams:
1. Do we have a documented roadmap with the requisite initiatives prioritized and assigned?
2. Do we have the critical gaps recognized and skilled resources and technologies identified?
3. Do we have the strategic and operational initiatives planned and funded?
Has your institution responded satisfactorily to the NY Department of Financial Services"Request for assurance of Preparedness for LIBOR Transition?"
Excerpts from the letter (Dec 23, 2019):
"... the Department is issuing this letter to seek assurance that regulated institutions’ boards of directors, or the equivalent governing authorities, and senior management fully understand and have assessed the risks associated with LIBOR cessation, have developed an appropriate plan to manage them and have initiated actions to facilitate transition."
"As regulated institutions are engaged in credit, derivatives, and securities transactions that are linked to LIBOR, its cessation will have a significant impact on such institutions as well as the broader market." “It is imperative that regulated financial institutions with LIBOR exposure have robust and comprehensive plans in place to address their risk." "Inadequate preparation for transition to alternative rates could have an adverse impact on the safety and soundness of regulated institutions and may cause harm to consumers and markets. Such transition requires a significant amount of work, which should have already commenced."
"To that end, the Department requires that each regulated institution submit a response to the Department describing the institution’s plan to address its LIBOR cessation and transition risk."
Where is your financial institution in its LIBOR Transition Journey?
We deeply understand our target market of mid-size and small institutions, and how their needs differ from those of large institutions
We have created a division of FIRM Advisors focused on LIBOR Transition Services and Solutions and dedicated to mid-size and small financial institutions
We bring not only our industry expertise and experience but also our artifacts and solutions to execute our 5x5 framework.
Our LIBOR Transition and Conversion Focused Services and Solutions
1. LIBOR Education and Assessment
Providing Senior Management education
Uncovering and documenting your key issues, exposures, impacts
Identifying risks of the transition to your business, operations, financials, systems, and legal/tax/accounting/reporting
Analysis and recommendations for remediation and validation
2. LIBOR Transition Playbook for strategy, roadmap, and program initiative prioritization
Creating a LIBOR Transition Roadmap and Execution Program
Create Roadmap of changes and sequencing, including process, technology and organization
Create Transition Program, Conversion Program, establishing management, monitoring and governance
3. Collaboratively Executing the Roadmap, Program, Processes, Technology using artifacts, samples, templates, and resources
Program and project leadership and/or management
Program execution – changes to Process, Technology, Organization, Training
Testing and Transformation
Support, Training & Enhancement
4. Scenario Analysis and Valuation of LIBOR Assets/Liabilities/Derivatives; Validations of SOFR Products/Models/Risk-framework
Conducting research and data analysis to create plausible and extreme scenarios for LIBOR to SOFR spread
Assessing impacts to balance sheet and financial forecasts for a variety of scenarios
Performing portfolio stress testing, risk assessments, and valuation impacts of assets/liabilities/derivatives to the balance sheet
Supporting updates to risk limits, policies, procedures, and controls for risk measures including VaR, interest rate, spread sensitivities
Validating new SOFR products, risk models, valuation tools, hedging strategies
5. Contract Remediation Strategy for Conversion of legacy agreements and contracts and using technology for remediation:
Communication strategy with Customers, Counterparties, and Vendors
Strategy about when and how to convert documents, products, systems
Accelerate legacy contract remediation by using technology to:
segment legacy LIBOR documents by terms/product/customer for complexity and risk
“read, index, remediate” legacy LIBOR disclosures/contracts/products at machine pace and scale, directly in systems of record
FIRM Advisors and CCPace have partnered to offer a full suite of LIBOR Conversion and Transition facilitating services and solutions specifically for mid and small size financial institutions.