The Implications of Transitioning from IBOR

JANUARY 2019
TRANSITIONING
FROM IBOR – THE
IMPLICATIONS
Copyright © 2019 Accenture. All rights reserved. 1
ACCENTURE
FINANCE & RISK

Agenda
Copyright © 2019 Accenture. All rights reserved.
Context1
Discussion Topics2
Key Metrics3
Alternative Risk-free Rate Landscape4
Impacts5
Copyright © 2019 Accenture. All rights reserved. 2

IBOR:
THE
CONTEXT
A number of interbank offered rates (IBORs)
are being replaced by Alternative Risk-Free
Rates (ARFRs)1
LIBOR replacement impacts USD 370
trillion in existing contracts that must be
amended globally2
Financial services organizations are
assessing the impact of the transition
Transitioning from IBOR exposes firms to
multiple challenges
1
2
3
4
3
1. IBOR Global Benchmark Transition Report June 2018.ISDA, AFME, SIFMA,
ICMA, 2018: http://assets.isda.org/media/85260f13-66/406780f5-pdf/
2. The $370 Trillion Benchmark Challenge. ISDA, February 5, 2018:
https://www.isda.org/2018/02/05/the-370-trillion-benchmark-challenge/

Discussion Topics
Program
Mobilization
Maturity of organizations’ IBOR Transition Program (e.g., plan,
governance, impact estimate, and maturity)
1
Regulatory
Engagement
Regulatory communication and enquiry regarding impact
assessment and risk mitigation plan
2
Technology
Innovation
Technology-based tools, capabilities and innovations to
accelerate IBOR Transition (e.g., Artificial Intelligence, Natural
Language Processing, Data-Driven Analysis)
3
Impact Analysis
Dimensions
Key impact dimensions and approach to quantify exposure
(e.g., Product, Legal, Finance, Infrastructure and Governance)
4
Key
Challenges
Key challenges and high impact to an organization (e.g., market
adoption, valuation and risk management, market liquidity,
contract remediation, exposure analysis)
5
Copyright © 2019 Accenture. All rights reserved.Copyright © 2019 Accenture. All rights reserved. 4

1., 2., 3.: IBOR Global Benchmark Transition Report (June 2018): https://www.isda.org/a/OqrEE/IBOR-Transition-Report.pdf
0
10
20
30
40
50
60
70
80
Market Adoption
Valuation / Risk
Management
LiquidityLegal
Infra-structure
New Contract Transition2
47% in 2 Years
Challenges1
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%
Unknown
0 BN -1 BN
1 BN - 100 BN
100 BN - 500 BN
> 500 BN
IBOR Exposure3
Key Metrics (1 of 2)

1. IBOR Global Benchmark Transition Report (June 2018): https://www.isda.org/a/OqrEE/IBOR-Transition-Report.pdf
2. Alternative Reference Rate Committee (ARRC), Second Report of the Alternative Reference Rate Committee (March 2018): https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2018/ARRC-Second-report
Key Metrics (2 of 2)
Not Mobilized Initiated Internal Communication Plan Budget
24% 53% 12% 11%IBOR Program
Mobilization1
34 0.5 0.6 0.5 0.3 0.9USD
Trillions
Outstanding
IBOR Exposure
(2021)2
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
OTC Derivs ET Dervis Business
Loans
Consumer
Loans
Bonds Securitizations

Alternative Rate ESTER
Reformed
SONIA
SARON SOFR TONAR
Administrator
European Central
Bank
Bank of
England
SIX Swiss
Exchange
Federal Reserve Bank
of New York
Bank of
Japan
Overnight Rate
By October 2019
Term
Rate Under Consideration Under Consideration Under Consideration End 2021 Under Consideration
Secured Unsecured Unsecured Secured Secured Unsecured
• Overnight vs. Term Rates: Lack of forward looking term structure and
working to develop term rates.
• Credit Risk Premia: Secured excludes credit spread while unsecured
have smaller credit spread than LIBOR.
• Fragmented Market: Varied implementation, data source, timelines may
result in a fragmented application.
1. IBOR Global Benchmark
Transition Report June
2018.ISDA, AFME, SIFMA,
ICMA, 2018, Working Groups:
http://assets.isda.org/media/85
260f13-66/406780f5-pdf/
Alternative Risk-Free Rate Landscape7

Organizational Impacts
For financial firms operating globally, the effects
of multiple jurisdictions using different Risk-Free
Rates should be considered as this can seriously
affect decision making at the business and
organization levels.
Products currently offered
to clients as well as future
product offering decisions
should be evaluated based
on the new Risk-Free Rate
landscape.
PRODUCTS
GLOBAL
The scale of the transition
impacts a large number of
financial firms, product
ranges and numerous
geographies, with different
timelines for completing the
change.
MULTIFACETED
IMPACT
LEGAL
Banks are expected to
review, analyze, amend
and renegotiate
thousands of contracts
linked to the IBORs.

Product Impact: Assess IBOR-linked products to evaluate exposure by key parameters (e.g., legal entity, currency,
maturity).
Analyze IBOR impacted products
Quantifying percentage instruments
expiring / remaining
Inventory of risk models linked to IBOR
Scenario-based analysis
Legal Documentation Impact: Financial firm should conduct an assessment and evaluation of the impacted legal
documents. This should help size the scale and administrative effort on their part to amend legal documentation for
new alternative rates.
Evaluate the adequacy of
fall back provisions
Review and analyze impacted
contracts requiring amendments
Contracts with obligation actions
Effort estimation to transition to
RFRs
Impact Analysis Dimensions (1 of 3)

Financial Impact: Produce analytics to evaluate the impacted positions and associated market risk, credit risk, risk
weighted assets, balance sheet and P&L values.
Process and Technology Impact: Analytics on the impacted processes and procedures can help determine
infrastructure configurations and enhancements.
Review and analyze capital and
risk of impacted positions
Potential tax
considerations
Assess and analyze market value of
impacted positions by platform,
geography and entity
Analyze impacted P&L and
associated trading books
Visualization of impacted
enterprise IBOR linked
operational processes
Evaluate curve data sets for
trading, valuation and reference
data systems
Effort estimation and process, and
critically assess process
Analyze stack of impacted
enterprise technologies and
platforms

Governance and Stakeholder Impact: Creating analytics on platform ownership and stakeholders to
support the assessment of control adequacy, delivery ownership and stakeholder coverage, and on
governance model to facilitate the transition.
Assessment of control framework for
transition risks
Analyze and assess key inflight initiatives
and dependencies
Stakeholder map across business lines,
enterprise functions, and technology

Legend
ESTER: Euro Short-Term Rate
IBOR: Inter-Bank Offered Rate
LIBOR: London Interbank Offered Rate
P&L: Profit and Loss
RFR: Risk-Free Rate
SARON: Swiss Average Rate Overnight
SONIA: Sterling Overnight Index Average
SOFR: Secured Overnight Financing Rate
TONAR: Tokyo Overnight Average
12

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Disclaimer
This presentation is intended for general
informational purposes only and does not
take into account the reader’s specific
circumstances, and may not reflect the most
current developments. Accenture disclaims,
to the fullest extent permitted by applicable
law, any and all liability for the accuracy and
completeness of the information in this
presentation and for any acts or omissions
made based on such information. Accenture
does not provide legal, regulatory, audit, or
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obtaining such advice from their own legal
counsel or other licensed professionals.
13
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