Financial Services Ireland


Key considerations for boards assessing LIBOR transition readiness

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With the London interbank offered rate (LIBOR) and other interbank offered rates (IBORs) set to be phased out as reference benchmarks for interest rates by end 2021, the financial services industry is reaching a critical junction in its preparations for the post-IBOR world of 2021 and beyond. Boards of directors can, and should, play an active role in shaping their firm’s LIBOR transition programs by providing guidance and challenge to help management successfully navigate this critical transition and to ensure that risks are identified, understood and mitigated.

The Covid-19 pandemic presents a very challenging economic environment for financial services firms. In addition to placing pressure on resource capacity with widespread remote working, regulators globally have been clear that LIBOR is expected to cease after end 2021. The Working Group on Sterling Risk-Free Reference Rates (BoE RFRWG) reaffirmed earlier this year that there will be no delay in momentum, and in fact transition will help strengthen the financial system: “All financial products will need to remove dependence on LIBOR by end-2021. All users of LIBOR must act now.” 

Given the vast and varied challenges and opportunities (such as opportunities to re-evaluate existing business strategies, products and pricing methodology tools) that LIBOR transition presents, it is critical that boards are actively engaged and ask management the right questions about how transition preparations are progressing. Our recent paper, which you can download below, highlights the key considerations for boards to make sure that:

  • clients are treated fairly throughout the transition,
  • sufficient resources are deployed, and
  • that the transition program is aligned with business goals and strategy.

Key issues for boards to consider include:

  • Governance and program management
  • Risk management (with an emphasis on conduct, operational and financial risks)
  • Product and business strategy
  • Legacy contracts remediation (amending existing contracts)
  • Conduct and communications (clear, fair and timely communications)
  • Operational readiness
  • Sector and industry engagement

Given the scale and complexity of this transition, it is important that market participants take immediate stock of their preparations without delay. 2021 is fast approaching, and the operational and financial challenges associated with preparing for IBOR transitions will require immediate focus.

EY can help with taking stock of your IBOR transition – don’t hesitate to reach out if you have a question.

Thought Leaders

Danny Buckley

Banking & Capital Markets, Sector Leader

Ken Phillips

FS Partner, Financial Accounting Advisory Services