The financial services industry is racing against the clock in one of its most significant changes in decades. The London Interbank Offered Rate (LIBOR) will be phased out at the end of 2021. LIBOR is the benchmark for $350 trillion in bonds, loans, derivatives, and securitizations worldwide. It will be replaced by a variety of alternative reference rates (ARRs) around the globe – generally by country.
Changing from LIBOR to ARRs require financial firms to update front- and back-office systems, retrain staff, and redesign processes. They will need to modify or renegotiate potentially thousands of contracts. There’s a lot of work to do, with long lead times, so the potential costs of delay grow with each passing week.
How can you manage the uncertainty? PwC can help.
The LIBOR Strategy and Analytics portal is an end-to-end tech-enabled service built to extract key contract clauses, analyze LIBOR terms and provisions, deliver best-in-class remediation recommendations, and position clients to capitalize on future opportunities.
If you’re just at the early stages of preparing for life after LIBOR , you may find the scope and complexity of the project to be pretty daunting. Certainly, the stakes are high, and you may need help from internal and external partners who don’t understand the urgency.
LIBOR affects virtually all aspects of the organization. There is a lot of uncertainty about existing contracts, what regulators want, how the industry will evolve, and more. This is a dynamic problem — and it can be both highly technical and operationally complex.
PwC can help you see how this could affect your strategy and operations, the potential economic impacts — and what you can do about it.
If your program is underway, you’ve likely already seen some of the subtleties. Before you think about remediating contracts, you have to find them all – and make sure your terms are consistent. To monitor risk, you may want to have a LIBOR view and a SOFR view – and you may need to update policies and systems. Your operational systems, from interest rate calculations to security master data, may need changes – and with the whole industry starting to pay attention to the transition, trained resources are getting harder to find.
We understand the potential pitfalls because we’ve been doing the work. Whatever your industry, we can help you find solutions to your toughest LIBOR transition issues, from tax to third party risk management.
Market leaders understand that the LIBOR transition actually gives them a terrific opportunity. With your knowledge of the subtleties of SOFR and other ARRs, you may be able to create new, truly differentiated products. By digitizing your contracts, you may improve customer experience and increase loyalty. The updates you make to systems and processes can make you more agile and more efficient. And managing the transition across multiple ARRs may increase your global competitive position.
Some people view the LIBOR transition as an infrastructure problem. We can help you see it as part of a digital transformation program that can lead to sustained growth.
PwC can help you create a LIBOR transition program that works for where you are now. We can develop and implement a tailored governance structure that can help you manage your program across your business units and the geographies where you operate.
PwC can help you analyze your company’s direct and indirect exposure to the LIBOR transition. We conduct assessments across your operations to help you understand where remediation might be needed with your products, functions, and systems.
PwC can help you evaluate how your products may need to change once markets are no longer tethered to LIBOR. We assist you in evaluating how economic implications for your new offerings, and the downstream effects of any changes you might make.
PwC can help you address vulnerable contracts, including fallback provisions, on your terms. We can work with you to identify LIBOR-linked contracts and extract the relevant data, analyze those contracts for risks, and create a remediation plan to support your negotiations with customers and counterparties.
PwC can help you create an outreach plan for clients, counterparties, vendors, and regulators. We’re prepared to support you as you share how your company is adapting to the changes and monitor if the message is getting through.
PwC can help you identify and manage the updates you’ll need to process ARR trades across internal and external systems. We can help you update front- and back-office systems, treasury and ALM systems, vendor solutions, and supporting business processes.
PwC can help you change your risk and valuation models to reflect the effects of the new ARR(s). We can work with you to construct curves, address changes to Central Clearing Counterparty (CCP) discounting, incorporate historical data sets, adjust risk capital calculations, and validate the updated models.
PwC can help you understand how the change will affect your accounting and tax programs across the relevant standards. We can help you adapt to the post-LIBOR environment, reflecting hedge accounting rules and managing tax impacts on funds transfer pricing.
Corporate CFOs are beginning to focus on potential risks of the coming LIBOR transition. They know managing corporate debt and liquidity could get more challenging as LIBOR-based products become less desirable. And, they may need to adjust their use of foreign exchange or commodity hedges to manage risk. Without a clear accounting, though, few corporations can accurately identify all of their explicit exposure.
FinTech Trust Services Co Leader, PwC US
US Deals, Strategy & Operations Leader for Tax Reporting & Strategy, PwC US
Financial Services, Principal, PwC US
Asset & Wealth Management, Partner, PwC US
Financial Services, Partner, PwC US
Principal, PwC US
Capital Markets Strategy Partner, PwC US