LIBOR Transition POV with Feedback V1
LIBOR Transition A Mindtree Point of View for Banking and Financial Institutions for LIBOR Transition Context The London Interbank Offered Rate (LIBOR) is widely used in the global financial markets and is called the “world’s most important Interbank Offered Rates” with a notional value of over US$ 350 trillion globally. It is calculated and published daily in five currencies (GBP, USD, EUR, JPY, and CHF), and seven maturities (overnight, one week, and 1, 2, 3, 6 and 12 months) by the Intercontinental Exchange Benchmark Administrator (ICE BA). In 2012, a series of allegations were raised against LIBOR for calculations, and numerous fines were imposed on several international banks. For this, the UK Government had conducted Wheatley Review that recommended: Continuing the usage of LIBOR Reforms rather than replacing them Called for a strict process to verify submissions with transaction data Market participants should play a significant role in LIBOR production and oversight Benchmark transition has been on the global agenda since 2014 and finally in 2017, the Financial Conduct Authority (FCA) examined the future of LIBOR and passed the regulation to replace LIBOR with an Alternative Risk-Free rate. LIBOR scam has also been linked to Derivatives, Bonds, Mortgages, Loans, Mutual Funds, Securities, Underwriting, Deposits Advances, Pension Funds, and Contracts worth $370 trillion. All these also need to be transitioned to a new benchmark rate wherein the Central Banks and Regulatory Authorities imposed that it would no longer persuade, or compel, banks to submit to LIBOR beyond 2021and work towards transition planning to Alternative Reference Rates (AFR’s). Let’s have a quick look into the possible Alternative Reference Rates/Risk Free Rates (ARFR) that can be made applicable, and the timelines for LIBOR Transition.
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