LIBOR Transition

The world’s most important number is changing. Are you ready?

"LIBOR transition will rapidly gain momentum in 2020 based on increased client demand, continual pressure from regulators and the switch to ARRs for discounting by the Clearing Houses."

Bruce Laing | Co-lead Libor Transition

The London interbank offered rate (LIBOR) has been the standard benchmark for various financial instruments for decades and is currently used to benchmark over $300 trillion USD equivalent across 5 currencies.

Following the decreased confidence in the LIBOR process resulting from the 2012 rigging scandal, the FCA declared that LIBOR was no longer a viable solution and that it will not require panel banks to make LIBOR submissions after 2021. With continual regulatory communications that LIBOR will be discontinued, banks must consider the risks associated with market-wide transition currently taking place.

Over the last five years, regimes have created working groups to identify alternative reference rates (ARR). These working groups, comprised of representatives from both the public and private sector, have made notable strides in bridging the gap.

In all cases, the Risk Free Rate (RFR) benchmarks that have been proposed are overnight rates. They have been chosen in preference to term rates because the emphasis is on having real transactional data to base these rates on and the overnight markets are deemed to represent the deepest and most stable markets, minimising reliance on expert judgement. 

Firms should have completed their impact analysis and implementation planning to address the impact of transition across their products, clients and infrastructure. The impact on products will need to be considered from front to back across all types of Financial Institutions.

For an overview of thematic challenges across financial services view our overview guide