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Preparing for the Post-Libor Future

Posted on 08/10/2020


Significant steps have been taken by financial market participants and regulators since 2012 to strengthen the governance, transparency and reliability of London Interbank Offered Rate (LIBOR).

However facing a post-financial crisis decline in liquidity in interbank unsecured funding markets has rendered such markets an unsustainable reference source and therefore regulators globally have concluded that alternative reference rates (RFRs) are necessary for the effective operation of financial markets.

The LIBOR transition is by no means a small undertaking. As a widely-accepted interest rate benchmark for borrowing costs, IBORs are referenced in many financial contracts. For perspective, the most commonly-used rate, LIBOR, underpins contracts with an aggregated value in excess of US$350 trillion, by some estimates. Yet with these rates reportedly becoming less reliable representations of borrowing costs, regulators and working groups have sought alternative RFRs.

BACB recommends that its clients should plan well ahead in order to fully grasp the financial, legal, operational and risk-related impacts of the LIBOR transition on their businesses – notably when it comes to longer-term contracts that extend beyond 2021.

To assist BACB clients to assessing the consequences of the LIBOR transition, we have prepared a one page LIBOR Transition factsheet and a more detailed LIBOR transition booklet.

Upon the paper’s release, Bhavesh Dattani, BACB’s chief compliance officer, says: “While related exposures to the LIBOR transition will vary from client to client, our advice is simple, early identification and action is the key. We recommend that our clients begin assessing their LIBOR exposures and engage with their stakeholders in preparing for the transition to an alternative benchmark-rate future. BACB will be there to support its clients in each step of that journey. ”

BACB recognises that for some clients, the LIBOR transition may well represent a burdensome exercise during a period of uncertainty. Our relationship managers will keep you informed of any changes to existing products and services, and will be on hand to provide any support or guidance you may need.