Currently, there are in excess of $5 Trillion in US business and consumer loans outstanding that rely on LIBOR benchmarks. Every single lending agreement underlying these exposures will need to be remediated prior to the LIBOR end date. For a single agreement, negotiations with borrowers and legal representatives can take months. Creating a framework that balances the inherent complexities of moving to a new benchmark rate, client interests and preferences, and banks’ resource constraints is a delicate task.

The industry-wide transition from London Interbank Offered Rates (LIBOR) to Alternative Reference Rates (ARRs) is rapidly approaching. Strong system integration testing practices, coupled with a comprehensive validation and verification strategy, are essential components for a successful transition. Failure to implement a robust testing framework risks inaccurate regulatory reporting, which often translates into loss of confidence of the overall program and may draw unwanted regulatory scrutiny.

Recently, many of the various LIBOR working groups published recommendations and objectives for transitioning from LIBOR to the new ARRs. Hundreds of market participants have contributed to consultative papers and publications to assist financial institutions in addressing complex scenarios encountered as part of their individual LIBOR transition journey. To alleviate concerns and industry-wide pressures, Monticello has prepared this best practice insight paper to assist our clients in their preparation ahead of the anticipated January 1st, 2022 LIBOR end date

Global financial regulators have issued more than $26B in market conduct fines to financially regulated institutions and individuals since 2012. Although financial institutions have learned to navigate uncertainty and manage the complex risks associated with market conditions, the House Financial Services Committee’s Congressional Hearings continue to suggest that firms struggle to address the critical issue of conduct risk.