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Benchmark interest rates such as LIBOR and EURIBOR have come under heavy criticism in recent years due to market manipulation. At the same time, banks have increasingly withdrawn from the unsecured short-term refinancing market, whose rates are supposed to represent benchmark interest rates.

As a result, the IBOR reform was launched in 2012, with several concurrent initiatives by supranational bodies (G20, FSB) and central banks (working groups) aimed at creating alternative and robust benchmark interest rates.

The speed of implementation as well as the methodological and procedural approaches differ significantly between jurisdictions and currency areas.

In the euro area, the Benchmark Regulation (EU BMR) aims to ensure the accuracy, robustness and integrity of benchmarks used within the EU single market in the interests of investor and consumer protection. Consequently, EURIBOR and EONIA will no longer be compliant with the EU BMR as of 1 January 2020.

The UK Financial Conduct Authority (FCA), the regulator responsible for calculating LIBOR, has announced that it will no longer require banks to provide an estimate of LIBOR from 2021.

Uncertainty about the future of IBORs, combined with the huge volume of transactions and products related to the rates, creates systemic risk and the need for transition planning for all affected financial market actors.

The challenges associated with the transition are big

In addition to dealing with the still high level of uncertainty, as a clear, internationally agreed approach to IBOR reform is lacking so far, consideration of different scenarios is critical to success during the transition. This requires a high degree of flexibility and strategic thinking, as the impact of these changes goes far beyond individual product groups or business processes. For banks, the contract analysis of existing derivative, bond and credit agreements as well as refinancing instruments in particular will tie up significant expenses. The identification of all relevant contracts and their legal adjustment or renegotiation is an integral step in the transition to new benchmark interest rates. Here, the use of new technologies such as artificial intelligence can significantly simplify the process. Furthermore, in addition to adjustments in the front office, extensive adjustments must be made in the middle and back office. Legal, tax and accounting implications must also be identified and their effects considered or mitigated.

How you benefit from our expertise

Our team of experienced employees supports affected stakeholders in the necessary transition and will be happy to advise you with innovative and pragmatic solutions along the entire value chain.

Our project approach is tailored to the individual customer. We are here to assist you at every stage, with mobilisation & awareness raising initiatives, the initial assessment of how affected you are, implementation project planning, as well as comprehensive or ad hoc support for your transition.

Due to our international positioning, we are in contact with important national and international IBOR working groups and ensure that your transition not only meets the current standards, but is also designed with the future in mind.

Feel free to contact us.