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What can we learn from the global IBOR transition?

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Financial institutions continue to work towards a transition away from the London Interbank Offered Rate (LIBOR) denominated in US dollars. We asked those experienced with the LIBOR replacement initiatives in Asia and Europe to share their insights on how best to successfully manage and deliver large-scale programmes of this kind.

In August 2021, Peerpoint published an article about how legal consultants were boosting their skillsets and careers in large-scale in-house projects associated with the phase-out of interbank offered rate (IBOR) transition.

Today, the transition from IBORs, specifically LIBOR, to an alternative system of risk-free rates for most currencies (specifically Euros, Japanese yen, and Swiss franc) is generally complete.

However, the most heavily used U.S. dollar LIBOR tenors will continue until the end of June 2023. So, we continue to see plenty of demand from financial institutions for legal consultants to participate in projects managing LIBOR’s transition to the secured overnight financing rate (SOFR).

For these financial institutions and legal consultants alike, what lessons can be learned from earlier IBOR transition projects in other parts of the world?

What lessons have our clients learned so far?

The financial institutions we spoke to emphasise that enhanced, clear, and consistent communication, risk management skills, transparency, and stakeholder management skills are all vital to ensuring a smooth transition away from IBOR, alongside legal expertise.

“Apart from the core IBOR team, there are other lawyers and business stakeholders involved peripherally,” points out one senior legal executive at a major global financial organisation in Hong Kong.

“So an important part of the core team’s job is to keep everyone updated on key changes. If there’s a big milestone coming up, for example, it’s up to us to explain not just what’s happening, but how it will impact the different stakeholders’ business and what actions they will need to take.

“While we cannot ask people to stop everything and become instant IBOR experts, at the same time, we do need to make it clear just how they will need to pick up the baton and run with it.”

It’s also important to be sensitive to global teams’ differing requirements. “The central transition team in London or New York, for example, will be driven by strong regulatory targets and milestones. That team may expect regional offices to stop using LIBOR immediately and start using alternative products,” says the senior executive.

“But they would also need to be sensitive to business requirements in other jurisdictions, perhaps in Asia or Europe, where the only mechanism clients have known is LIBOR. These clients may feel the new regime is being forced on them.”

Another issue the executive’s financial institution has faced is a talent shortage when it comes to recruiting legal support in Asia.

“I have struggled to hire the types of contractors and other resources that, say, my colleagues in London can get,” he says.

“That’s why I was happy I had somebody here from Peerpoint to help. Without that, the IBOR transition might have been a real car crash. Having that support – with someone who has our consultant’s training, experience, and exposure to multiple clients as part of her work for Peerpoint – is just excellent.”

What lessons have our legal consultants learned?

The Peerpoint consultants we spoke to all agree that establishing consistent internal and external lines of communication is essential to the success of an IBOR transition project, along with sound planning and stakeholder management skills.

“Achieving the milestones of IBOR transition requires the involvement of a multitude of experts, including legal, regulatory compliance, tax, business, structuring, trading, and risk management. It’s a truly multi-faceted issue,” says Erica Kelly, a consultant who worked on a transition project at a large financial institution in Hong Kong.

Kelly says her participation in the transition project has also expanded her ability to deliver specialist legal expertise.

“Legal is just one aspect of IBOR transition, but within an in-house legal team we can master our understanding of the regulatory position and how this translates into the derivatives documentation, so we can accurately guide key stakeholders,” she explains.

Brian Or, a Peerpoint consultant also based in Hong Kong, points out that centralised communication and planning should encompass local knowledge sharing, wherever possible.

“Where in-house team members are part of a central team overseeing the project, a two-way information flow with regional teams is essential to ensure that central initiatives are understood and acted upon throughout the organisation. He says. “At the same time, local regulatory timelines and remediation volumes must be factored into global planning.”

Or also suggests it’s vital for planning to begin early, as remediation strategy and client outreach need to be tailored to the different businesses, product lines, jurisdictions and client bases.

“Providing project team members and external contractors with comprehensive onboarding and access to internal systems and platforms helps to prevent bottlenecks and allows them to operate with greater efficiency,” he says.

Joii Goh, a former Peerpoint consultant who has now taken a permanent role, worked on an IBOR transition project in Singapore and believes her experience has taken her multi-tasking and project management skills to the next level, given the complexities involved.

She has also seen other powerful benefits, including an enhanced ability to deliver IBOR transition strategies effectively across different product lines. At the same time, Goh’s IBOR experience has increased her ‘hard law’ knowledge and her understanding of different product types, documentation and operational (or technical) systems.

Goh has advice for other lawyers considering work in a future large-scale regulatory project: “Set yourself up for a challenge and build goodwill with everyone you can from all departments because you need all the bolts and nuts in place to be an effective bridge!”

What is Peerpoint’s view of the IBOR landscape, along with the benefits of working on large-scale projects?

As Asia-based Peerpoint client development manager Dany Sok explains, the prevalence of IBOR transition projects has led to an upsurge in demand for legal consultants on long-term contracts.

“Around 18 months ago, we started to see a lot more requests from financial institutions for this kind of help in Asia,” Sok says. “And now, because those consultants have developed a sound knowledge of IBOR, their contracts keep getting extended. We are currently working with one client who has said they would like our consultants to stay until June 2023, the ultimate deadline for the project.”

Peerpoint senior client development manager Felicity Warren, who is also based in Asia, agrees that these longer-term contract opportunities for consultants can deliver multiple benefits.

“Many of our consultants tell us that having year-long – or even longer – contracts makes IBOR projects even more of an attractive proposition,” Warren says. “That way, they can build their skillsets and expand their range of capabilities.”

Judy-Anne Patulot, a client development manager with Peerpoint in the United Kingdom, points out that financial institutions are now requiring different types of support than they did for previous IBOR transition projects.

“In the earlier days, banks were looking for consultants for more strategic roles – people who could help shape the IBOR strategy and lead project,” she says. “More recently, the requests have been for consultants who are more technical – people who can negotiate agreements and have acute attention to detail.”

Warren suggests banks need to plan for when they may need additional external resources.

“It’s all about assessing who you have, what skill sets they have, and planning around that – plus knowing what your timeline is, and when you’ll need the resource,” she says.

Amie Davidson, head of Peerpoint in the United States, reports that financial institutions there are continuing to require additional legal resources for their ongoing IBOR transition. This, in turn, presents attractive opportunities for lawyers.

“The magnitude of the transition away from USD LIBOR is expected to result in a significant demand for legal resources during the last year of transition from USD.”

“It’s a great way for lawyers to build their skillset around managing a large regulatory reform project,” she says.

And as Amie points out, the principles of working on a big, slow-moving regulatory change project can be applied to other types of projects as well.

“There are also opportunities for Peerpoint to transfer skills across the globe, with our lawyers working virtually with a project team in a different country. For example, somebody in Asia or Europe might work with a client in the U.S”.

“Even lawyers who haven’t been exposed to an IBOR transition project before should know there is still time to get involved and build experience that can be used in future regulatory reform projects as they arise.”

Find out more

To discuss any of the themes raised in this article, please get in touch with one of our team:

Felicity Warren and Dany Sok  in Asia

Luke Wilson in Australia

Judy-Anne Patulot in the UK

Azara Digan in the UAE

Amie Davidson in the U.S. 

You can also take a look at our latest job opportunities here.