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LIBOR Transition: Leveraging Digital Technologies for Seamless Migration

 

Vijay Rangan G

Lead, LIBOR Initiative, Banking, Financial Services and Insurance, TCS

Karan Arora

Financial Risk Consultant, Risk Practice, Banking Financial Services and Insurance, TCS

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LIBOR countdown - are you ready for the transition? 

The Financial Conduct Authority (FCA) has announced the cessation of the London Interbank Offered Rate (LIBOR) with effect from 1 Jan 2022. The impact of LIBOR transition on financial instruments will be huge given the heavy dependence of banks and other market participants on LIBOR. Hence, ensuring an orderly transition to a new benchmark rate is of paramount importance.

A variety of financial instruments will require system level changes to migrate to a new benchmark rate. Efficient and timely LIBOR transition will necessitate regulatory and domain knowledge as well as technology expertise. Given that the stability of the financial system will depend on smooth and orderly LIBOR transition, banks must leverage digital technology enablers to address operational challenges. Achieving a systematic transition will require banks to:

  • Adopt an agile approach for impact assessment and exposure analysis
  • Evaluate changes required for impacted applications
  • Set up new curves and models for term rate calculation
  • Ensure effective governance of the LIBOR transition program

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