IBOR/LIBOR Transition: A Disruption Across Global Business
The London Inter Bank Operating Rate (LIBOR) is the average interbank interest rate at which a selection of banks on the London money market are prepared to lend to one another. Over the years, LIBOR and similar rates like the Euribor have become the defacto standard for benchmark rates and are at the heart of a wide spectrum of global cash, derivates and loan products.
LIBOR referencing contracts have notional value of hundreds of trillions dollars. According to recent ISDA metrics, 80% of de rivatives contracts with over 300 Tn value and 97% of US syndicated loans with $3.4 trillion value reference LIBOR.
However, in recent times, the robustness of the IBOR rates has come under increasing scrutiny due by controversies of rate manipulation as well as reduction in liquidity after the financial crisis.
In July 2017, the Financial Conduct Authority (FCA) announced its decision to stop publishing LIBOR by the end of 2021. This has necessitated financial institutions and corporates to create a strategy to transition to alternative Risk Free Rates (RFRs) like Sterling Over Night Index Average (SONIA) and SOFR (Secured Overnight Financing Rate).
Management of Legacy Exposure, Legal Risk Management & Closure
A key component of the LIBOR Transition Program in any institution is the impact assessment of “at-risk” legacy contracts referencing LIBOR, exposure calculation and the legal risk management is a time consuming and high cost process if done manually. EvoluteIQ has developed an AI-based solution to address this requirement.
The solution enables organisations to process legacy contracts to programmatically organise and extract relevant data / clauses in both structured and unstructured data. It can then use Machine Learning to calculate exposures and finally trigger reporting and Re-papering workflows.