What is LIBOR?
The London Inter-bank Offered Rate is an interest-rate average calculated from estimates submitted by the leading banks in London. Each bank estimates what it would be charged were it to borrow from other banks. The resulting rate is usually abbreviated to Libor or LIBOR, or more officially to ICE LIBOR.
What was the LIBOR Scandal?
The Libor scandal was a series of fraudulent actions connected to the Libor (London Interbank Offered Rate) and the resulting investigation and reaction. The Libor is an average interest rate calculated through submissions of interest rates by major banks across the world.
Why is LIBOR a Problem for Financial Services Organisations
The London Interbank Offered Rate (LIBOR) is being replaced. Currently the benchmark for over US$350 trillion in financial contracts worldwide, the impact of the transition from LIBOR will be far-reaching for financial services firms, businesses and customers alike.
This means that a wide range of financial services that base their contracts and financial agreements on the LIBOR rate will be invalid after 31st of December 2021. All documentation will need to be re-written or edited so that it will comply with the new terminology which is SOFRA (USA) and SONIA (UK)
A large number of contracts that reference LIBOR extend beyond 2021. Renegotiation is likely to be costly and resource intensive, and more importantly may create financial gain for one party, leading to conduct risk and future litigation. Compounding this issue is that fact that fallback provisions in contracts are mostly inadequate, and do not often envisage a situation where LIBOR is permanently discontinued.
Who in the Organisation will be affected by LIBOR?
Legal and Compliance Teams will play a key role in terms of the contractual understanding and arrangements however, other departments will be affected such as:
C Level Executives – CEO / CFO / COO / CTO
Directors – Finance / Operations / Information Technology / Compliance / Security / Risk
Managers – Finance / Operations / Information Technology / Compliance / Security / Risk
LIBOR Teams – Are getting assembled today
Procurement / Recruitment / HR
What can Organisations do?
There are 3 main options:
- Manually Eyeball Each Document (could be millions of pages)
- Develop Search Capability Internally (create systems and processes)
- Use Specifically Designed and Developed LIBOR Search Solution that is automated (ONQU Solutions approach)
What is ONQU doing?
ONQU has teamed up with market leading and best of breed providers in document interrogation/classification and combined it Robotic Process Automation (RPA). This will allow technology to undertake the heavy lifting in identifying ‘at risk’ documents and then automate the selection and classification of the documents without the need to employ large teams of people.
Resources and Background Reading
LIBOR – Articles and Webinars
These resources help organisations the scale and complexity of the LIBOR Change problem:
Bank of England – LIBOR Position (June 2019)
Bank of England – LIBOR Information (June 2019)
Risk Management Association LIBOR Timeline (June 2018)
TFA Geeks – The End of LIBOR (Spetember 2018)
Forbes – is LIBOR similar to Y2K (October 2018)
Intralinks – Managing the LIBOR Transition (September 2019)
Altegroup – You cant trace time LIBOR (October 2019)