Less than Half of Financial Services Firms Confident in Their Ability to Meet LIBOR Transition Deadline, Accenture Report Finds
September 16 2019 - 8:01AM
Business Wire
Transition presents firms with the opportunity
to undertake larger business transformation; those with “mature”
transition plans see a revenue opportunity
While most banks, insurers and capital markets firms have plans
to transition away from the London Interbank Offered Rate (LIBOR) —
which regulators are set to phase out at the end of 2021 — less
than half (47%) are confident they have the necessary talent and
capabilities to complete the transition by then, according to a new
report from Accenture (NYSE: ACN).
The average interest rate at which major global banks borrow
from one another, LIBOR is linked to around US$400 trillion in
financial instruments, including credit swaps, securitizations,
student loans and mortgages.
The report, titled “Liboration: A Practical Way to Thrive in
Transition Uncertainty” and based on a survey of 127 financial
services institutions and 50 corporates globally, notes that 84% of
the institutions have LIBOR transition plans in place. However,
four in 10 (41%) admit to lacking a unified and consistent approach
across business lines; only one in five (20%) consider themselves
operationally ready for the transition; and even fewer (18%)
describe their LIBOR transition program as “mature” — i.e., with
operationalized systems, remediated legal agreements, fully
documented product flows, and compliance to regulatory
requirements.
The report suggests that firms use the transition to consider
opportunities to transform their operating models and
infrastructures; identify which products, both existing and new,
will need to be updated to incorporate the new rates; and consider
their liquidity and capital positions post-transition, based on
their strategy and pace of transition.
“Past experience and our data suggest that transformations of
this magnitude will be longer, costlier and more complex than
anticipated,” said Samantha Regan, global lead for the regulatory
remediation & compliance transformation group within
Accenture’s Finance & Risk practice. “The findings indicate
that few firms have a holistic transition approach across business
units or geographies. There’s a plethora of challenges to consider,
including their vendors’ product readiness; unvalidated assumptions
in product design and transition timing, which could lead to
lending or trading book profit and loss uncertainties; and customer
confusion about the transition.”
The survey also revealed a lack of detailed planning in spending
priorities as well as siloed planning approaches across the
business. For instance, nearly a quarter (23%) of respondents plan
to allocate funds to product design over the next three years,
while only 17% plan to allocate funds to operations and to risk
models, areas which are likely to see significant activities during
the transition.
Further, the report notes that specific functions within
financial services organizations do not appear to be well-prepared
for the transition. Only 15% of respondents say that their legal
teams are ready to deal with the numerous contract remediation,
deal restructuring and repapering activities, and only 14% say they
are confident that their risk management teams have a detailed
understanding of the transition activities and the impact on risk
management. There also appears to be a lack of alignment across
geographies, with nearly half (47%) admitting they are not
confident that they understand the regulatory expectations across
jurisdictions.
While regulators have urged for a prompt transition away from
LIBOR, respondents seem to believe that the 2021 deadline might be
flexible. For instance, one-quarter (23%) predict that LIBOR will
discontinue gradually after 2021, and half (51%) expect regulators
to provide relief to their organization given the regulatory
uncertainty.
Organizations with “Mature” Transition Plans See Revenue
Opportunity
The report notes that most firms surveyed are taking a measured
approach to the transition, but firms with “mature” programs might
have a strategic advantage. More than nine in 10 (94%) of these
firms see the LIBOR transition as a strategic opportunity, and 91%
— compared with just 2% of those without mature programs — believe
the incremental revenue generated from the transition can offset
the cost of remediation over the next three years.
“Financial services firms have a choice: allocating resources
and talent just to comply with regulations, or using the transition
away from LIBOR to transform their business and create a
competitive advantage,” said Venetia Woo, principal director of
North American regulatory strategy within Accenture’s Finance and
Risk practice. “There’s real revenue and cost reduction
opportunities for those willing to take the lead on setting and
trading these benchmark rates — using the LIBOR transformation as a
backdrop to fix costly, archaic and outdated technology and
processes; eliminate product servicing inconsistencies; and
stabilize and reinforce their client relationship strategies.”
More information about the report can be found here:
www.accenture.com/LIBORsurvey
Methodology
For the report, Accenture surveyed 127 treasury and operations
executives at financial services institutions, including banking,
wealth management, asset management, and insurance, in Australia,
Japan, Hong Kong, Switzerland, the European Union, the United
States, and Canada. The survey also included 50 treasury and
operations executives from other corporate industries — including
products and services, resources, health and life sciences, and
communications, media, and high tech — based in the United States
and Canada. The survey was conducted via computer-aided telephone
interviews (CATI) between June and July 2019.
About Accenture
Accenture is a leading global professional services company,
providing a broad range of services and solutions in strategy,
consulting, digital, technology and operations. Combining unmatched
experience and specialized skills across more than 40 industries
and all business functions — underpinned by the world’s largest
delivery network — Accenture works at the intersection of business
and technology to help clients improve their performance and create
sustainable value for their stakeholders. With 482,000 people
serving clients in more than 120 countries, Accenture drives
innovation to improve the way the world works and lives. Visit us
at www.accenture.com.
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Michael McGinn Accenture +1 917 452 9458
m.mcginn@accenture.com
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