The LIBOR transition is a significant event impacting a broad set of financial products and market segments. Given how deeply embedded LIBOR is in the financial ecosystem, it is important to properly plan, mobilize, and execute a program that encompasses all of a firm’s businesses and functions. This checklist was developed to provide considerations for impacted firms.
Summary – Simplified practical implementation checklist for SOFR adoption
- Establish Program Governance: Implement a robust governance framework with accountable senior executives to oversee the delivery and coordination of the firm’s enterprise-wide LIBOR transition program.
- Develop Transition Management Program: Establish an enterprise-wide program across functions and businesses to evaluate and mitigate the risks associated with the transition with specific considerations for unique product and client exposures.
- Implement Communication Strategy: Develop and implement an enterprise-wide strategy with clear objectives to proactively engage, consistently communicate, and increase levels of education with impacted internal and external stakeholders.
- Identify and Validate Exposure: Quantify and develop a flexible approach to monitor LIBOR-linked exposures through the transition period. Obtain or develop capabilities to value SOFR-based products as part of the transition to using those products.
- Develop Product Strategy: Develop a strategy for redesigning or transitioning the existing portfolio of LIBOR products, including creating or using new products based on SOFR.
- Risk Management: Identify, measure, monitor and control financial and non-financial risks of transition, establishing processes and oversight routines for ongoing management.
- Rates Risk Management: Identify and measure impacts to the interest risk management policies and procedures. Impacts can include transfer risk pricing, building of new pricing and valuation curves, and basis risk management.
- Assess Contractual Remediation Impact and Design Plan: Understand the financial, customer, and legal impacts resulting from transitioning from LIBOR to SOFR via fallbacks, and plan mechanisms for implementing.
- Develop Operational and Technology Readiness Plan: Develop a plan to address the largescale operating model, data and technology implications required for LIBOR transition.
- Accounting and Tax: Determine accounting considerations and tax impact from changing/amending contracts and new terms of reference rates.
And a LIBOR Transition 10+ (There is always one more with LIBOR Transition…).
- Reporting and Regulation: Determine where LIBOR was part of your financial and risk reporting and assess the new regulatory expectations for the transformation and use of LIBOR.
(Adapted from the Federal Reserve Board Alternative Reference Rates Committee, but originally scoped by the FRB ARRC LIBOR Transition Working Group Leads at Broyd Partners LLC.)