Enterprise Change Standards Implementation for IBOR Transition

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.

SKILLS & KNOWLEDGE (Level of Difficulty)

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Providing Regulatory Guidance and Testing Governance for IBOR Discounting

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.

1. Worked with business owners and users to develop strategy and business cases for regulatory changes

2. Liaised with stakeholders to cement understanding of upcoming changes and obtain pre-implementation approvals

3. 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.

1. Established audience, communication objective, and channel of delivery

2. 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

3. 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.

SKILLS & KNOWLEDGE (Level of Difficulty)

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Leveraging Digital Tools During Process Redesign to Accelerate Large-scale Transformations

Engagement Summary

IBOR transition – it’s been an exciting 18 months – but we are not done yet.  One aspect of this transition that has been largely absent from the discussion is the need to ensure that teams executing this once-in-a-lifetime change have the technology and tools that they need to successfully transition to the alternative rates. The wholesale banking technology organization of a top 10 global commercial bank engaged Monticello Consulting Group in late 2019 to spearhead the design and development of digital tools to support the IBOR transition. Monticello kicked off the engagement with a current state assessment of functional processes (credit, technology, operations, and fulfillment) that were in place. Next, Monticello redesigned the functional processes to ensure they were comprehensive and scalable. To support this process redesign, Monticello created a new digital tool to enable systemic intervention in the repricing process to greatly accelerate the LIBOR migration. The tool captured all of the necessary data elements, created a workflow process engine to identify and track the required steps on the process, interfaced with downstream systems to change any needed data elements, and reduced the manual time required to implement change. Ultimately, the Monticello team ensured that the client: (1) effectively engaged and communicated with internal and external stakeholders regarding the transition requirement and timeline, (2) maintained legal integrity of each credit agreement, and (3) demonstrated the effectiveness of each step taken to clients and regulators.

During the process review and discovery, Monticello identified opportunities where the tool and process redesign could support initiatives beyond the IBOR transition. The client had a broad need for a portfolio tool that could be used for all portfolio review activities. As such, the tool was designed to be modular and easily changeable to allow for future workflow processes to be included while being interconnected with the entire system stream. Taking a holistic approach to a singular problem, allowed Monticello to identify a broad-based solution that met the needs of IBOR transition and beyond.

Case Study Detail

PROJECT BACKGROUND

The cessation of IBOR rates has a broad impact on financial services. From technology, sales, internal funding operations, and beyond, this change impacts almost every functional area of a bank. The IBOR cessation is a critical global transformation that requires a bank to demonstrate robust operational readiness. To accomplish this, areas such as process redesign and data consolidation through to regulatory reporting needed to be reviewed and adjusted in order to facilitate a comprehensive end-to-end transition from IBORs to replacement rates. Monticello, in coordination with its client, was tasked to drive success across two significant workstreams. The first mandate was to capture all required data points in relation to wholesale credit exposures from the downstream accounting systems. The second mandate was to create a workflow tool designed to identify priorities and actions to be taken as well as track results while integrating with other applications and systems. Together, these mandates were necessary to streamline the process and accelerate the path to support a successful transition from IBORs to replacement rates. entities based on their overall risk and impact.  

ENGAGEMENT OBJECTIVES

Data consolidation and workflow tool creation included four components:

• Identify all data points required to (a) locate all credit facilities that have the ability to use an IBOR rate (b) contact internal partners that work with the client to migrate away from IBOR and (c) enable a rate change process that is stable and scalable.

• Redesign the end-to-end credit process to facilitate a mix of manual and automatic rate change activities in coordination with technology and operations. Ensure that the redesigned process is robust enough to handle the large-scale volume, approvals, and documentation. Create solutions for any gaps in the new process utilizing internal tools and activities to reduce time to market and increase adoption by end-user groups.

• Build a tool that can aggregate the required data and present it to users in a graphical interface that is complete and user-friendly. As part of the tool development process, the Monticello team ensured that the tool was able to interface with upstream and downstream systems to reduce the manual time required to reprice the credit facilities.  Additionally, the tool needed to leverage the redesigned end-to-end credit process.

• Ensure end-user and technology testing completeness, accuracy, and stability.

BUSINESS VALUE

Monticello Consulting Group, through a continuous partnership with our client, embarked on an ambitious process redesign and digital transformation engagement to accelerate the transition from IBOR to reference rates. By leveraging our data analysis and automation expertise, the Monticello team was able to develop a tool that supported data collection and workflow management of all transition activities. Ultimately, the tool enabled our client to complete large-scale changes to portfolios with minimal manual interventions. Our rigorous program management and testing governance methodologies, end-to-end process understanding, and timely execution helped support readiness for this monumental shift in interest rate benchmark reform.

SKILLS & KNOWLEDGE (Level of Difficulty)

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Enabling Transformation & Change: Technology Change Standards and Communications

Engagement Summary

Monticello Consulting Group was engaged by a Fortune 500 banking institution to streamline the adoption of technology change standards, improve internal communications, and facilitate external reporting. Financial market participants must adhere to high quality standards when executing critical technology programs. Regulatory agencies are not only concerned with operational risk in the adoption of new technologies, but also want to ensure that critical legacy applications are changed following a strict and controlled process.

The Monticello team was tasked with the development of best-practice change standards. The standards provide change program teams with guidelines in three fundamental pillars: Adoption, Reporting and Training, as illustrated in Exhibit 1. Monticello started this engagement by establishing adoption metrics that drive high quality deliverable standards. As a next step, our team established a robust reporting framework that supported the monitoring and communication of program conditions and status. Many of the reports were automated to improve overall program efficiency. Lastly, the team assembled a knowledge base of reusable job aids and reference documentation to ensure that change teams adhere to consistent implementation standards.

Exhibit 1

Case Study Detail

PROJECT BACKGROUND

The OCC (Office of the Comptroller of the Currency) ensures banks regulated in the United States operate in a safe and sound manner. Our client, subject to a Matters Requiring Attention (MRA) notice from the OCC regarding technology processes and delivery controls, established enhanced technology change policies and standards. Monticello’s Change Management and Financial Services Advisory Team was brought in to support multiple technology teams within fixed income sales and trading. Our clients include technology leaders and executives who are working very closely with their front office business partners. Our mandate was to empower and upskill their program managers and technology team leaders to arm them with the capabilities to efficiently plan and execute while adhering to critical standards.

ENGAGEMENT OBJECTIVES

Change Standards Adoption:

• Monticello developed a change standards tracker containing over 1,500 data points spanning 10 delivery programs, and 50 sub-projects representing over $55M in technology investments. Automated tool helped eliminate delivery delays and compliance breaches.

• Internal quality assurance reviews and audits were conducted regularly.  Weekly Readiness Reports served as an early indicator of success or failure by grading over 80 controls per program.

Communications & Reporting:

• Monticello developed technology performance reports and standardized the output with intuitive metrics that allowed traders to quickly evaluate overnight processes and completion status.

• Monticello automated management reporting by using code to transform raw data into summary decks for daily and weekly executive reviews. Additional reports aimed at improving planning accuracy were semi-automated into emails directed towards technology leaders on a weekly basis to accelerate planning decision making.

• Using Tableau™ software, Monticello’s Data Visualization Team developed and released strategic and actionable reports to technology leaders and executives pertaining to code releases success rates.

Training & Skill Building:

• Paramount to our services is Monticello’s deep understanding of change standards and our ability to transfer that knowledge to program and project managers in a consumable way. We created job aids through SharePoint™, Wikis, artifacts such as templates and samples, and led weekly touchpoints to provide timely and clear guidance.

• Additionally, Monticello’s team helped prepare the organization for external audits.

BUSINESS VALUE

Monticello Consulting Group is a leader in change management and digital transformation. Our team of highly skilled consultants has extensive experience introducing change to organizations through the use of technology. By leveraging our proven methodologies, we successfully supported the adoption of enterprise technology change standards that ensure compliance, lowered operational risk, and achieved 98% on-time deliveries.

SKILLS & KNOWLEDGE (Level of Difficulty)

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Leading Transformation: IBOR Portfolio Transition and Go-to-Market Readiness

Engagement Summary

The Interbank Offered Rates (IBOR) underpin the vast majority of derivative and cash loan product contracts in the financial markets. As a result, the IBOR transition is likely to be one of the biggest transformation programs many global financial institutions undertake. Given the current focus on the COVID-19 pandemic, this transformation is even more challenging prompting the need for strong program leadership. The wholesale banking technology organization of a top 10 global commercial bank engaged Monticello Consulting Group in late 2019 to spearhead and manage the IBOR Transition Program. The massive transformation to be prepared for IBOR cessation can be broken into two distinct areas: 1) Portfolio Transition Readiness and 2) Go-to-Market Readiness. Portfolio Readiness is achieved by understanding all existing IBOR exposures and having vetted processes in place to shepherd every exposed facility to an approved risk-free rate (RFR), such as the Secured Overnight Financing Rate (SOFR) in the U.S. and the Sterling Overnight Index Average (SONIA) in the U.K.. Go-to-Market Readiness is achieved by the enhancement and testing of all pricing, underwriting, fulfillment, accounting, and data repositories that will need to onboard and service new facilities referencing the RFRs. Accounting system enhancements have been deemed the most critical and complex to support new RFRs and billing conventions.

Monticello was brought in to advise on key areas related to both Portfolio Transition and Go-to-Market Readiness:

Wholesale Credit Portfolio Transition Tools and Process:

In preparation for the IBOR cessation, Monticello was asked to review the current business-as-usual processes (credit, operations, technology, and fulfillment) that were in place and determine the scalability and stability. In addition, Monticello also evaluated the ability of existing processes to handle large volumes of transactions in an abbreviated timeframe. During the review, gaps were identified and Monticello designed an end-to-end process to guide the client engagement and facility transition activity of the internal partners. In support of the end-to-end process redesign, Monticello identified the need for, and managed the development of, new internal tools that would enable the bank to systemically intervene in the repricing process thereby reducing the time required for migration. This enhanced process ensured that the bank: (1) engaged and communicated with all clients (2) maintained all legal requirements of each agreement and (3) the ability to demonstrate each step taken to management, clients, and regulators.

Wholesale Credit Loan and Lease Accounting Enhancements:

Monticello was tasked with managing and delivering the end-to-end implementation of enhancements to all loan and lease accounting system of records. This included the ability to support the new risk-free rates (SOFR, SONIA, ESTR, SARON, TONAR), a ‘spread adjustment’ rate to those existing IBOR-referenced loans, and implementation of the new fallback language. In addition, Monticello partnered with the client’s subject-matter experts to construct an integrated project plan to transition all existing loans (legacy loans) and prepare new loans (“Go-to-Market Readiness”) before the industry-wide deadline of December 31st, 2021. Monticello advised the clients on new industry-wide requirements as consultative papers, rules, and regulations continue to emerge. As the IBOR transition impacts many different people, processes, and technology, Monticello reinforced strong governance and control practices. This included a detailed RACI (responsible, accountable, consulted, informed) matrix and an Integrated Communication Plan across the various teams. Additionally, Monticello ensured all sign offs were requested and received before completing all milestones ensuring completeness throughout each stage of the program.

Case Study Detail

PROJECT BACKGROUND

Global regulatory standards published in 2018 require all financial institutions to discontinue issuing IBOR-based loans and derivative contracts by December 31st, 2021. To stay competitive in the wholesale lending market and maintain market share, our client is making significant technology and operational investments to be prepared to support RFRs across multiple currencies. Banks and sell-side firms will lead issuance of RFR-linked products, providing critical liquidity to the market which will enable an industry-wide migration from IBOR-linked derivatives and cash loan products. This program was initiated as a result of a combination of pending regulatory requirements and business efforts to remain competitive.

ENGAGEMENT OBJECTIVES

LIBOR Transition Monitoring Tool Design:

Redesigned the end-to-end rate change, credit documentation, and approval processes to ensure stability and scalability. Additionally, repricing tasks were automated to allow for the most efficient transition possible. Developed new technology tools for use by stakeholders to transition facilities and provide the necessary data for monitoring. Designed interface and user actions within the technology tools to minimize the time frame needed during the transition. Designed and implemented new credit processes to allow for large scale approvals and documentations. Conducted multiple user group reviews to enhance the tool and identify existing process gaps. Created solutions to address the internal gaps utilizing existing tools as well as identifying new processes to close gaps. Tested end-to-end processes and solutions to ensure completeness and accuracy.

Loan and Lease Accounting System Program Management:

Developed an integrated project plan, covering all loan and lease accounting system of records, to successfully track and report the progress to ensure both Portfolio and Go-to-Market Readiness. Developed both industry and enterprise-wide IBOR requirements to ensure alignment with up-to-date regulatory announcements. Constructed an integrated communication plan, which includes a roles and responsibilities and RACI matrix. Coordinated and managed multiple different releases, engaging application owners and downstream testing partners to ensure operational readiness. Collated market data sources to advise client on industry recommended sourcing methodologies to support RFRs. Obtained stakeholder sign offs to allow software releases and new operational processes enablement.

BUSINESS VALUE

Monticello Consulting Group, through a continuous partnership with wholesale banking technology, operations, product management, and enterprise-wide credit teams, positioned our client to offer new RFRs in wholesale lending agreements and transition existing agreements to new RFRs. Our rigorous program management and testing governance methodologies, end-to-end process understanding, aptitude for risk-sharing, and timely execution supported the tangible business outcomes for our client to ensure readiness for this monumental shift in interest rate benchmark reform.

SKILLS & KNOWLEDGE (Level of Difficulty)

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Leading Change for a Global Bank: IBOR Replacement for Wholesale Banking

Engagement Summary

The wholesale banking technology organization of a top 10 global commercial bank engaged Monticello Consulting Group (MCG) in late 2018 to help lead and manage the program to transition off Interbank Offered Rates (IBOR).  The business outcome being sought was a transition of the bank’s wholesale loans business from IBORs to new alternate reference rates, such as the Secured Overnight Financing Rate (SOFR) in the US and Canada and the Sterling Overnight Index Average (SONIA) in the UK.  MCG was brought in to advise on the program structure, define the target outcomes, and provide ongoing governance for the multi-year IBOR replacement program to prepare the bank to offer alternate reference rates to its wholesale lending customers in the US and European markets by the end of 2019, with other geographies to follow in 2020.

The MCG team designed a program governance structure to support multiple workstreams comprised of wholesale credit product owners, agile scrum delivery teams, developers and testing teams, as well as operational and business process owners. In addition, MCG supported senior leadership teams and program sponsors by providing ongoing management communications including the technology application roadmap, product and release management reporting, along with key risks and issues and overall program updates for steering committee decision-makers. The structure below summarizes the program governance implemented by MCG:

Project Background

Global regulatory standards published in 2018 require all financial institutions to discontinue issuing IBOR-based loans and derivative contracts by 2021 and replace these products with alternative reference rates based on regional requirements. To stay competitive in the wholesale lending market and maintain market share, our client is making significant technology and operational investments to be prepared to support SOFR and SONIA rates in lending contracts as early as Q2 of 2019. This program was initiated as a result of a combination of pending regulatory requirements and business efforts to remain competitive.

Engagement Objectives

Program Management:

Designed and stood up the IBOR replacement program governance structure for the wholesale banking technology organization. MCG advised on the design of an independent PMO to ensure all changes to the client’s systems and processes were delivered as required by the business, operations, and regulatory mandates for the IBOR replacement program. 

Testing Governance:

Developed testing plans with technology and business teams to track the effectiveness of technology enhancements being introduced as a result of this program. Conducted multiple end-to-end testing cycles engaging application owners and project working groups within the wholesale credit line of business. Obtained stakeholders signoffs to allow software releases and new operational processes enablement.

Business Value

Monticello’s team, through a continuous partnership with wholesale banking technology and operations teams, positioned our client for success in developing the capability to offer alternative reference rates in wholesale lending contracts. Our rigorous program management and testing governance methodologies, end-to-end process understanding, aptitude for risk-sharing, and timely execution supported the tangible business outcomes for our client to be ready for this monumental shift in interest rate benchmark reform for global debt instruments.