End of the road for the most important number in finance

LIBOR, the London Inter-Bank Offered Rate that has been used as the global benchmark rate-setting mechanism for more than forty years, will be published for the last time for most currencies on 31st December this year.

There will be no further delays to this deadline and, in its most strongly-worded announcement to date, the UK’s Financial Conduct Authority (FCA) was joined last month by the Bank of England to stress that firms must act now to complete their transition plans.

Why the rush? 

The sudden focus on moving rate-setting processes away from LIBOR to global Risk-Free Rates (RFRs) is actually not that sudden at all; the starting gun was fired in 2017 by the FCA in an effort to increase the robustness of the global financial system and there has been a consistent message since then that 2021 would remain the deadline. 

What perhaps appears as a recent increase in attention to this subject is more likely a typical response to a looming regulatory deadline. There is of course much work still to be done by many financial institutions, particularly with the unprecedented distractions to all areas of business from the pandemic during a critical period for the LIBOR transition. 

So what does still need to be done? 

This is a critical question and the core subject of a research project recently undertaken by RWS into tier one global financial institutions. Across the industry, there has understandably been a concentration on the operational challenges of the transition – how will use of LIBOR be phased out, which of the RFRs will be used in its place and how might this affect existing books of business, some of which are based on long-term agreements that stretch beyond the December 2021 deadline. We chose to focus instead on an under-represented area: the issue of the vast amount of content that will require updating as a result of the transition. 

Some of the findings were stark: 

• There is much work to be done by many firms with 40% only having started planning for the transition under a year ago or not having started planning at all yet.
• Such is the volume and complexity of content updates that most respondents will require assistance from third parties, 64% highlighting that legal advisors in particular will be key to this challenge. This reflects especially the issues inherent in the remediation of contracts that mention LIBOR.
• 88% of respondents will need to update content in multiple languages as a result of cross-border LIBOR arrangements. Often left until late in the process, this is an area that requires particular attention due to the regulatory nature of much of the content involved.
• The transition is the beginning of a broader undertaking with 82% of participants also using other Inter-Bank Offered Rates (IBORs) across international markets. Many of these IBORs are also expected to undergo reform in the coming years.

Escalating multilingual content priorities