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21 November 2019 10 min read

(L)IBOR Transition Case Study

Mobilisation, co-ordination and implementation of the IBOR transition programme.

Client requirement

A Global Bank asked asked Baringa to support their IBOR transition programme in the following ways:

  • Mobilisation of a programme in response to the industry-wide transition from IBORs to Alternative reference rates.
  • Overall programme management of the programme to coordinate, develop and drive the delivery of the overall transition plan, in line with industry developments and anticipation of client demand
  • Working with Desk heads to develop a consolidate view of IBOR exposures, and ensure awareness amongst front office and clear understanding of FO role in managing risk during transition
  • Working with functional leads and desk heads to analyse front to back impacts by product, covering all front, middle and back office functions, covering process, controls and systems change
  • Working with Legal teams to identify all contracts relevant to products referencing IBOR, and developing the approach for repapering and adjustment fallback language
  • Client segmentation and associated communication needs, to develop a client engagement and communications strategy, to help mitigate future conduct and legal risk
  • Delivery of internal IBOR transition awareness raising sessions

Baringa’s role 

Baringa worked with internal bank resources on the following:

  • Mobilisation of the overall IBOR transition programme
  • Programme Management and facilitation of various front to back working groups 
  • Material and facilitation of regular Steering Committee and Board Updates
  • Impact Assessment and transition scenarios across all Front to Back functions
  • Creation of a phased transition plan, milestone delivery and dependency management
  • Industry Outreach, internal and external communciations

Outcomes

  • Structured programme with clear points of accountability across the organisation
  • Clarity of budget and resource requirements to help deliver the programme
  • Holistic assessment of impacts, to enable the client understand extent of change required
  • Clarity of priority actions vs those which need to be reviewed following various consultations
  • Legal and Conduct Risk mitigation
  • Education of internal staff around IBOR transition
  • Prioritisation and phasing of IBOR transition within the context of other change happening at the bank

Client Impacts

Client impacts included the following:

Front office:

  • Product Scope and Exposure
  • Systems and Model Changes
  • Hedging Strategy
  • Legal and Conduct Risk
  • Counterparties
  • Collateral
  • Client outreach

Middle Office:

  • Valuation and PnL Production
  • Independency Price Verification
  • Risk Management and Control
  • Hedge Accounting
  • Asset Liability Management
  • Stress Tests
  • Rebooking and Amendment

Back Office:

  • Backward interest compounding
  • Cashflow changes
  • Collateral Operations
  • Disclosure Reporting
  • Fair Value Changes
  • Balance Sheet Changes
  • Additional Reporting requirement

Legal and Compliance:

  • Repapering and Fallbacks
  • Risk Disclaimers
  • Avoiding future litigation issues