Paving the way for transition towards an IBOR-free world.
InterBank Offered Rates (IBORs) were and still are, far ranging and utilised in most of financial instruments including Over-The-Counter (OTC) derivatives and Exchange-Traded Derivatives, syndicated loans, securitized products, business loans, retail loans, floating rate bonds and deposits.
The 2008 financial crisis and the LIBOR manipulation scandal have revealed the limitations of this benchmark and have raised important questions regarding its reliability. The Wheatley Report in 2012, followed by the FSB’s report two years later, the new European Benchmark regulation and finally the announcement by the FCA’s Andrew Bailey about the end of LIBOR have all set a path toward the benchmark reform. And now, dedicated working groups across the various FSB members’ jurisdictions are selecting and developing alternative Risk Free Rates (RFR) to replace the existing benchmarks.
* source: 2014 final report Market Participants Group on Reforming Interest Rate Benchmarks
Challenges for the Industry
The transition from LIBOR is complex, challenging and depends on an individual company’s business and processes. RFRs have been determined but are very different, by nature, from LIBOR and also less homogeneous in their construction. Transitioning to RFRs is a complex project that will have organisational and technical impacts along the value chain of transactions. The change needs to be started as early as possible and, delaying is not an option. Continuing to issue new IBOR-linked contracts which mature when RFR products have become a viable alternative, may lead to damaging financial, customer and operational impacts.
How Mazars can help
Mazars support its clients in their transition process and offering end-to-end solutions and bespoke services. From the identification and mapping of IBOR-related exposures to the implementation of a robust transition program our expert team have experience of working with a diverse range of financial services players. See the brochures below to see how we can help you.
Mazars IBOR tool
Our proprietary Mazars IBOR Tool measures and monitors IBOR risk in our clients’ portfolios, assisting them to develop structured and optimised strategy.
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Pauline Pelissier Director - Financial Services Consulting
Is Asia on its way to IBOR transition?
With Libor’s cessation date at the end of 2021 looming, global regulators are hastening their IBOR fallback strategies. Yet while market momentum has increased for multiple published RFR indices, among them the GBP SONIA, the EUR €STR, and the USD SOFR, Asian economies, some of which rank among the world’s largest, continue to lag. While significant progress has been made, Asian markets require further consultation and market momentum to reach similar development stages as the SONIA, €STR or SOFR.
IBOR transition: Fallback language developments
The expected 2021 disappearance of LIBOR requires robust fallback language for cash products and derivatives alike. Industry associations have taken initiatives to reform the historic fallback language of securities, with ISDA proactively leading the way on derivatives and national working groups proposing enhancements for cash products. While the derivatives market is expected to be harmonized under the finalized amendments to the 2006 ISDA Definitions for IBOR fallback language, the situation is different for cash products and especially loans.
LIBOR reform: Setting the cat among the pigeons
Could the transition period towards the new alternative Risk-Free Rates (RFRs) be more complex than initially envisaged? The speech given by Edwin Schooling Latter, Director of Markets and Wholesale Policy at the Financial Conduct Authority (FCA), on the 28 January 2019, suggests this might be the case.