Accenture recently surveyed financial services firms and corporates on their preparedness to transition away from LIBOR. As market dynamics continue to shift and the 2021 deadline runway shortens, firms from the sell side, buy side and corporates need to refocus their thinking, energy, and resources on executing and delivering their transition programs. They also need to get their operations ready to support new business as well as the transition to a post-LIBOR world. Complicating matters, the November 2020 ICE Benchmark Administration consultation announcement on the LIBOR USD rate creates further complexity for all parties.
Drivers and passengers face different challenges
Our previous Accenture LIBOR Survey (2019) findings identified two groups of distinct respondents. The first is made up of firms with mature transition plans and investing heavily to complete their transition on time. They consist mainly of the large sell-side investment banks and capital markets participants who set the trade benchmark rates. These firms are actively driving their remediation and transition programs.
The second group consists of passenger types who approach the transition with more caution, hesitancy and less commitment. This group is characterized by buy-side and corporate firms who are more likely to be users of benchmark rates.
Nearly six in ten sell-side respondents to our latest LIBOR Survey (2020) identified operational readiness and conduct risk as a top transition challenge. As well, over half indicated that their client outreach was a top transition challenge.
As for their buy-side peers, the survey showed that they were still in the early stages of the transition. They are also challenged in preparing their firms to operationalize fallbacks, having a data driven and scalable factory operating model, and being able to maintain compliance with investment mandates and contractual covenants.
Where do corporates stand?
Our LIBOR survey reveals that the financial and operational risk from adopting new interest curves and preparing for new alternative reference rate financing is far-reaching and requires significant testing and quality assurance. Corporates that have exposure in multiple currencies would have to operate with more than one deadline, with possible impacts to their capital and funding.
Steps to take now
With the transition just around the corner, firms should strongly pivot to execution and stop managing in silos to improve collaboration across internal teams and transition alliances.
Firms should also secure the necessary resources and have access to key skills across business lines and functions for executing transition activities. Vendor selection for transition activities, including trading platform technology vendors and legal third-party alliances, should be initiated and a robust onboarding process implemented.
Firms should also develop industrial strength integrated solutions across business lines, people, process, and technology to maintain operational resiliency in legacy, transition, and new business activities.