Other parts of this series:
Financial firms may be suffering from overconfidence as we enter the final stretch in the transition from LIBOR.
In the previous blog in this series, we looked at how conflicting priorities are hampering firms’ ability to address the transition away from the London Interbank Offered Rate (LIBOR), scheduled for the end of 2021.
In addition to conflicting priorities, our 2019 LIBOR Survey also showed firms might be suffering from overconfidence about the ease of transitioning and the timing and certainty of the transition end date. In 2019 we learned many financial services firms did not have a strategy in place to move their assets, contracts and clients to the new rate structure, and manage the transition across the organization and the industry to reduce and mitigate risk. Furthermore, less than half of survey respondents had the necessary funding, talent and capabilities to complete the transition by the end of 2021.
In 2020 we have seen global regulators signal they are moving ahead at full speed, and the 2021 deadline should not move. Entities such as the Alternative Reference Rates Committee (ARRC) have published their key 2020 objectives as well as recommendations for completing the LIBOR transition, for both financial firms and vendors, and both they and the Financial Conduct Authority (FCA) in the United Kingdom have provided detailed interim timelines for the transition of different products from LIBOR to alternative benchmark rates.1 As global regulators have begun to focus their attention on a timely transition away from LIBOR, there is now less confusion around the deadline.
In Accenture’s discussions with financial firms, we are seeing growing acknowledgment and acceptance of the need for transition planning.
With 2021 almost upon us, Accenture is conducting a new survey to explore if firms have grasped the complexities and challenges they face in transitioning away from LIBOR, and if their planning and thinking has evolved since 2019. Are financial services firms building the required robust plans to effectively transition assets, contracts and clients with confidence? Are they taking a strategic approach to their LIBOR transition, or opting for tactical and intermediate steps? And more importantly, would they be operationally ready for the 2021 deadline? Stay tuned for these important findings and insights.
In concluding, firms should heed the words of Andrew Bailey, the former CEO of the Financial Conduct Authority and now governor of the Bank of England, who said, “You can’t assume that LIBOR will be there after the end of 2021. So, don’t plan on the basis that you can go on as before because either it won’t be there or what will be there will, frankly, not be what’s there today.”2
- “Alternative Reference Rates Committee – 2020 Objectives,” Alternative Reference Rates Committee, April 17, 2020. Access at: https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2020/ARRC_2020_Objectives.pdf. “Impact of the coronavirus on firms’ LIBOR transition plans,” Financial Conduct Authority, March 25, 2010. Access at: https://www.fca.org.uk/news/statements/impact-coronavirus-firms-libor-transition-plans.
- “The View from Washington: A Conversation with FCA CEO Andrew Bailey and NYFRB President John Williams,” Securities Industry and Financial Markets Association, July 25, 2019. Access at: https://www.sifma.org/resources/news/the-view-from-washington-fca-bailey-nyfrb-williams/.