Engagement Summary
In late-2019, Monticello Consulting Group (Monticello) partnered with the Global Markets organization at a leading U.S. financial institution to support a front office technology program for changes related to IBOR cessation. The client initiated this program in order to successfully implement the large-scale changes necessary to meet 1) business growth objectives and 2) multi-year IBOR regulatory milestone requirements. The Monticello team was brought in to devise a project plan once the regulatory changes were proposed in anticipation of their formal publication. Next, the Monticello team provided the client with the necessary leadership and change management implementation capabilities to meet global stakeholder requirements for a successful multi-year IBOR migration. The Monticello team worked across an ambitious timeline with the client to define requirements, design a test strategy, formulate an execution plan, and manage development and testing teams - using Scrum methodologies - to drive the program towards successful completion.
The first phase of the IBOR cessation program focused on front book migration and the transition from IBOR rates to Alternative Reference Rates (ARRs). The critical milestones throughout the engagement focused on curve construction. The initial steps targeted changes to the discounting curves to move from IBOR rates to ARRs, specifically for EUR and USD currencies. In 2021, the program's focus shifted to implementing fundamental changes to the base interest rate curve construction. The Monticello Change Management team provided a rigorous governance structure for the program and effectively delivered implementation to a varied and complex suite of applications within the client’s business framework.
Monticello’s focus was to re-write and clearly define the client's delivery strategy, which involved a phased implementation approach dictated by product type, central counterparty clearing house (CCP), and currency throughout the project's lifecycle. The Monticello team's stakeholder and communication management expertise ensured goals and project status was clear, succinct, and achieved regulatory mandates.
Case Study Detail
PROJECT BACKGROUND
As part of the IBOR cessation, one major milestone was for the CCPs to migrate derivatives discounting from IBOR rates to ARRs. While the Interest Rates (IR) CCPs migrated to ESTR discounting in July 2020 and SOFR discounting in October 2020, the Credit CCPs chose to follow their own migration timeline. This digression would create some unique concerns for any business that held both IR and Credit positions, and Monticello’s client was no exception. The client decided to move to ESTR discounting at the same time as IR in July 2020 but decided to remain on EONIA for survival curve building due to its alignment with credit clearing. The client elected to remain on Fed Funds for both discounting and survival curve building while IR clearing moved to SOFR in October 2020. Soon after, the Credit CCP migration for both ESTR and SOFR (discounting and survival curve building) was completed in June 2021. Each separate change required significant and well-governed testing at different times to ensure any valuation changes aligned with expected rates.
ENGAGEMENT OBJECTIVES
Testing Governance: Implemented a test strategy to align program and project execution with business and regulatory objectives and enhanced metric development for transparent and effective stakeholder communication and decision-making.
Worked with business owners and users to develop strategy and business cases for regulatory changes
Liaised with stakeholders to cement understanding of upcoming changes and obtain pre-implementation approvals
Supported release management including end-to-end go-live planning, testing, and execution
Management Communications & Reporting: Developed a strategic communications plan to provide critical updates to stakeholders in a timely fashion.
Established audience, communication objective, and channel of delivery
Summarized critical information for regulatory reports, inclusive of program health status and communication of key risks, issues, and dependencies to senior leadership, program managers, business partners, and technology teams
Provided PMO/Program teams with well-defined key program metrics to facilitate the decision-making within senior stakeholder forums
BUSINESS VALUE
Monticello Consulting Group provides services across the financial services industry to ensure compliance and reduce regulatory risks. By working with clients to successfully translate complex regulatory requirements into effective business solutions, Monticello enables clients to implement the necessary risk and control framework to ensure industry challenges are turned into opportunities. Our team partners with cross-organizational client teams and oversees the end-to-end execution for IBOR cessation goals. By leveraging our regulatory knowledge, testing governance methodologies, and end-to-end process understanding, Monticello supported the tangible business outcomes for our client to ensure readiness for this monumental shift in interest rate benchmark reform.
