Third party financial vendors may want to accelerate their LIBOR transition efforts, aiming to meet ARRC’s suggested milestones.

On May 7th, 2020, the Alternative Reference Rate Committee (ARRC) published a set of recommendations for third-party vendors to assist in their preparations for the cessation of U.S. Dollar (USD) LIBOR by the end of 2021.1 The ARRC stated, “… it is important that vendors accelerate their transition efforts,”2 and has provided guidance on specific dates by which their various systems should be ready to support alternative reference rates.3

What this means

The ARRC has stated third-party technology and operations vendors, specifically those involved with booking, valuation and accounting, should complete all necessary system enhancements to support the transition from LIBOR to the Secured Overnight Financing Rate (SOFR) by the end of 2020.4 They recognize the differences in product types and so have recommended specific dates across those products.  

The ARRC recommended dates are:5

  • Floating Rate Notes – Vendors should complete all enhancements to support SOFR, including compounding in arrears and trading by June 30th, 2020.
  • Business Loans – Vendors should complete all enhancements to support SOFR, including compounding in arrears and term SOFR by September 30th, 2020.
  • Consumer Loans – Vendors dealing with consumer mortgages should complete all enhancements to support SOFR by September 30th, 2020.
  • Securitizations – Vendors should complete all enhancements to support SOFR, including compounding and trading by December 31st, 2020. 

Conclusion

The ARRC stated that it will continue to discuss “best practices” for other market participants and will publish accordingly.6 They have said these dates facilitate “sunsets” guidance, which is forthcoming, “after which no new LIBOR-based activity should be conducted.”7 

References

  1. “ARRC Recommended Best Practices for Vendors on Completing the Transition from LIBOR, Alternative Reference Rate Committee, May 7, 2020. Access at: https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2020/ARRC-Vendor-Recommended-Best-Practices.pdf
  2. Ibid.
  3. Ibid. 
  4. Ibid. 
  5. Ibid. 
  6. Ibid. 
  7. “ARRC Release Vendor Timeline, Best Practices to Support SOFR Transition,” ABA Banking Journal, May 7, 2020. Access at: https://bankingjournal.aba.com/2020/05/arrc-release-vendor-timeline-best-practices-to-support-sofr-transition/.    

Newsletter Author: Venetia Woo; Mairi Bryan

Newsletter Contact Person: Venetia Woo 

Disclaimer  

This blog is intended for general informational purposes only, does not take into account the reader’s specific circumstances, may not reflect the most current developments, and is not intended to provide advice on specific circumstances. Accenture disclaims, to the fullest extent permitted by applicable law, all liability for the accuracy and completeness of the information in this blog and for any acts or omissions made based on such information. Accenture does not provide legal, regulatory, audit or tax advice. Readers are responsible for obtaining such advice from their own legal counsel or other licensed professional. 

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