As mentioned in IBOR Part 1, this market led regulatory development is the most far-reaching change to the global finance industry. How firms prepare for it, and whether they take the opportunity to truly transform their businesses, will determine their success in the next decade.
Despite being proposed as early as 2012, the US and UK are aiming to phase IBOR out by end of 2021, and mid-2019 has already brought a flurry of planning and resourcing of teams within global banks to ensure readiness for the new, alternative reference rates – most notably in London and New York.
Specifically for all banks and capital market institutions, there would need to be significant analysis, planning and delivery (of tech and process) across all regions, with the following aims:
– Identifying scope – which desks, businesses, instruments and flows are affected (knowing this cross asset, cross department, covering multitude of systems and data)
– Calculating the exposure – of the backbook, including analysis of the contracts’ legal language, recalibrating financial and risk models, and adjusting for new accounting standards (to note – FASB has proposed amendment of SOFR as benchmark)
– Creating a strategy – based upon what the industry’s broader response is, what the risk appetite of the firm is (including a period of parallel run, using new and old reference rates for contracts in a given currency in given market scenarios), and if the firm sees room for further digital transformation (beyond pure regulatory compliance)
– Delivering on that strategy – putting in place new tech and refined processes, robust operational controls, and client outreach (covering the backbook remediation, transitional arrangements, and the future state/ target operating model)
Norton Edge provides the clarity of thought and depth of experience in order to efficiently identify scope and accurately calculate exposure. Consultants have expertise in both drafting business strategies, as well as sponsoring and project managing complex regulatory driven front and middle office projects.