Engagement Summary
In mid-2019, Monticello Consulting Group (Monticello) partnered with the Global Markets Technology team at a leading financial institution to support the delivery of a large-scale transition from IBOR-based interest rates to Alternative Reference Rates (ARRs) as mandated by the British Banking Authority. This program was initiated by the client in response to the need to change the core technology for Global Markets that supported pricing, trading, and risk management of products that utilized the IBOR interest rates. The goal of the program was to transform and enhance frameworks and capabilities through:
Development and update of core technology changes for analytics, pricing, trading, and risk platforms to use the new ARRs
The transition of the discounting methodology to ARRs for the transactions that have been cleared at the Central Clearing Counterparties
Creation of an end-to-end testing framework for financial products that use the new ARRs
Remediation efforts for ISDA client agreements that reference IBOR as the interest rate noted to govern those documents. The agreements were updated with language to stipulate the fallback protocol to use ARRs when IBOR is no longer in use.
Monticello deployed resources across the program workstreams to support the delivery of technology solutions, as well as the Program Management Office (PMO), to track project plans, key milestones, risks, issues, and dependencies. The Monticello team combined their proven program governance toolkit and effective stakeholder communication to ensure key program risks and issues were successfully mitigated and resolved through sound governance. The transition away from IBOR interest rates is a high-profile change for the industry and this changeover needed to be executed flawlessly in order for the client to demonstrate to their customers they were well equipped to provide the necessary support during this period of significant transformation. Deploying a dedicated Program Management Office to centrally manage program governance enabled Monticello to effectively execute on deliverables, utilize a clear communication strategy and maintain project momentum towards meeting major milestones in a timely manner.
Case Study Detail
PROJECT BACKGROUND
IBOR reference rates have been an integral part of the financial markets for decades and were used in a variety of financial contracts including mortgages, interest rate derivatives, and floating rate securities. After IBOR had been mired in scandal, oversight of the rate was taken over by the Financial Services Authority in 2012. By 2014, the Financial Stability Board recommended developing ARRs to replace IBOR as the core rate in financial contracts. At the time, the London Interbank Offered Rate was the benchmark for over US$350 trillion in financial contracts worldwide and the transition to a new reference rate would certainly be an arduous undertaking for any financial institution. Monticello’s client initiated the IBOR Transition Program to support the Global Markets Technology teams in their preparation for the transition to ARRs across front office and enterprise technology teams. Monticello was engaged in 2019 to initiate the project and support the Global Markets Technology senior leadership team to drive this complex global transformation towards success.
ENGAGEMENT OBJECTIVES
Program Management & Governance
The Monticello team provided program governance in support of the Global Markets Technology teams. Monticello also supported the PMO to drive the timely delivery of the key components of the program, inclusive of the foundational technology changes to support these changes, transition of discounting methodology at the central clearing counterparties, and new product enablement. This was achieved through stringent execution of project plans, timely risk and issue management, and robust governance standards. The PMO function included the following responsibilities:
Manage and report program deliverables leveraging the JIRA platform.
Partner with workstream leads to identify and manage key issues, risks, and internal/external dependencies.
Support testing efforts to ensure completeness of test plans, track progress and ensure stakeholder sign-off.
Create and maintain the key artifacts for the program and store them in the central tracking repository tool for stakeholder visibility.
Enterprise Change Standards Implementation
The bank implemented a series of change standards to be fully implemented in 2021. The goal of these standards was to ensure that organizational change would be subject to more robust oversight and supported through enhanced documentation. The Monticello team successfully embedded these enhanced standards across the bank, through the IBOR Transition program. Major components of these change standards included:
The requirement for all program details, as well as any technology change, to be entered and maintained in the enterprise change management tool.
An enhanced permit to operate process for significant changes. This permit process included review with all directly and indirectly impacted stakeholders to ensure there were no adverse effect on the wider technology space. Reviews included information and system architecture, business continuity, and information security.
The need for all documentation to support the technology change to be completed in a time manner and stored, in a central repository for added review by enterprise PMO and audit teams.
BUSINESS VALUE
Monticello recognizes that there is no single approach to address the complex issues facing business leaders today and we worked closely with our client to implement solutions that were optimal for their business and to their stakeholders. By leveraging our governance toolkit, and strong stakeholder communication, Monticello helped our client successfully navigate complex regulatory directives and turn challenges into opportunities by building effective business solutions. Our team partnered with cross-functional teams to oversee the end-to-end execution for the IBOR transition. With deep regulatory knowledge, change management expertise, and proven governance standards, Monticello successfully ensured that our client was in a position to maintain their competitive advantage over industry peers while exhibiting sound market conduct and compliance within the regulatory landscape.
