Financial Services Ireland

IBOR

Interest rate benchmark reform – what asset managers need to know

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There’s been so much noise around Brexit that it could be drowning out the details of an arguably bigger concern for asset managers, and that’s interest rate benchmark reform.

Big changes are on their way. Interbank offered rates, IBORs, are being phased out and the funds industry needs to be ready for the new post-IBOR world.

Approximately US$350 trillion worth of contracts use the London Interbank offered rate, LIBOR, as a benchmark rate, so the impact is going to be significant.

LIBOR forms the foundation of interest rate swaps and futures. It’s used by funds and fund managers as a reference rate for portfolio construction, agreeing terms with investors, and calculating returns on existing or new investments.

And while working groups are still ironing out the details, and there will be variations across jurisdictions, the EU Benchmark Regulation means that the transition from IBOR is a certainty and not a choice.

There are a number of cross-business implications that need to be considered. Challenges include data, technology infrastructure, treasury, accounting, legal, tax, regulatory compliance, controls, governance and oversight. That’s in addition to the obviously exposed areas of product, portfolio management and distribution.

So what should asset managers do now? Well to help the IBOR transition go as smoothly as possible, answering these three questions is key.

  1. Do you fully understand which of your products and contracts will be impacted?
  2. Do you have visibility of the different parts of your operating model that utilize LIBOR, as well as the changes for investors?
  3. Can you ensure clear governance and have you appointed an IBOR transition team?

Download our latest point of view on interest rate benchmark reform via the link below. If you have a question around any of these areas, don’t hesitate to reach out to me or your usual EY contact.

Dean Phillips

FS Partner, Wealth & Asset Management
Dean's Full Profile


Interest rate benchmark reform

Why asset managers need to prepare for LIBOR replacement

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