Financial firms need to engage clients as they transition from LIBOR. Here’s how they can be successful, despite the complexity.
As the planned cessation date for LIBOR rapidly approaches, firms are under increasing pressure when it comes to executing their detailed transition plan. At the core of this is the client outreach process—the process of engaging and working with clients to amend and transition existing LIBOR positions to an alternative reference rate (ARR).
The complexity around client outreach lies in the number of parties requiring involvement, transition uncertainty, the underlying operational, reputational, and financial risks and, for many institutions, the sheer volume of impacted transactions. Coupled with the notion that there is no “one-size-fits-all” approach across products, the outreach process can quickly become overwhelming.
What this means
Despite these challenges, focusing on (i) preparation, (ii) coordination, (iii) education and (iv) execution can quickly help shore-up outreach approaches and facilitate an effective execution.
Outreach requires thorough planning and ongoing review and challenge of plans, assumptions and dependencies. Careful planning of outreach activities can provide a strong foundation to facilitate outreach execution. Identification and understanding of internal and external dependencies—regulatory deadlines, system readiness dates and vendor upgrades—can help provide key guideposts for outreach, while an appreciation of LIBOR positions and products, and the readiness of new ARR products, can be used to help complete internal milestones.
The importance of coordination in an outreach program takes the form of both internal and external coordination. Internally, focused coordination across functions and business lines can help synchronize the organization activities, including how and when it engages clients, as well as the transition options it is able to provide. Focusing on this coordination can help mitigate conduct risk, which may arise as a result of the transition. Externally, timing and messaging to clients should be coordinated for consistency across the organization, both regionally and globally, and performed in a manner designed to mitigate conduct risk.
Effective outreach, including coordination and execution, can be facilitated by providing impacted resources with clear and ongoing information regarding the outreach program, their roles, and expectations. A regular cadence of information, both at an industry and program level, can keep internal resources engaged during the transition while helping to mitigate overall transition risk.
- Execution enablement
As system readiness dates approach and ARR product go-live dates near, careful organization and tracking can facilitate execution of the outreach program. Outreach involves numerous cross-functional and external interaction points that should occur at a high volume over a concentrated timeline.
To appropriately manage these interactions and mitigate the associated risks, the implementation of detailed processes supported by underlying technologies, such as workflow, contract lifecycle document management and data visualization tools, can support the scaled execution of the outreach program.
The LIBOR cessation requires organizations to transition positions “en masse” over a concentrated timeline. As time passes and the LIBOR cessation date approaches, the stress across each organization is likely to intensify as peer institutions begin to transition their positions.
Despite the challenges, transition programs can mitigate these growing pressures through a well-planned and coordinated approach. An emphasis on education and communications can inform employees so they are well-versed in the transition strategy, approach and details, and can thus convey a consistent and confident message to clients
Facilitating the execution and delivery of outreach through deployment of detailed processes and supporting technology can help reduce the overall complexity of the program while delivering key qualitative and quantitative decision-making insights needed to manage the transition.
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