Is the Swiss industry ready for the world without IBOR and how does the alternative look like?
These are the questions we wanted to address at our latest EY Breakfast event on 18th September 2019 in Geneva.
The EY industry roundtable held on 18th September in Geneva was an excellent opportunity to measure the IBOR transition progress of the Swiss market. We have gathered more than 75 participants representing diverse types of institutions, functions and industry sectors impacted by the IBOR transition.
Unsurprisingly, the answer to the question about the industry readiness was: “not yet fully ready” as there are many “unknows”. But equally, within just a couple of months, the Swiss participants have made progress in assessing the high-level impacts and reaching the inevitable conclusion that the scale of efforts to transition away from IBORs will be unprecedented.
The panel discussions with our hosts industry experts once again demonstrated the broad spectrum of Front-to-Bank impacts on products contracts, processes. The pressure from the regulators is expected to increase. The absence of liquidity or term rate may not be an excuse to postpone the IBOR transition planning.
Going forward, the institutions shall focus efforts on operationalizing the quantitative impact assessment (i.e. IBOR exposures monitoring) and going deeper in their analysis of concrete impacts on their processes, systems and contracts. The sell side firms will also be expected by the local regulators to accelerate efforts in developing new Alternative Reference Rate (ARR) products while the buy side clients will be on their turn expected to play a role in creating a customer demand.
- Although the transition away from IBORs has been initiated by the regulators, they expect that the relevant initiatives will be driven by the industry. 60 pct. of represented institutions are planning to offer and use the ARR-linked products in the near future (2020-2021).
- The transition challenges are manifolds, especially when it comes to adjusting products, contracts, processes and systems to new ARRs. 42 pct. of represented institutions do not yet have a clear view of the concrete impacts on their organization. There are many open points around the valuation, discounting, risk management and multiple currency rate products (e.g. FX swaps).
- Approximately one third of the represented institutions have not yet established the inventory of impacted IBOR contracts. This is however the key starting point for development of the legal transition plan and appropriate client communication strategy.
- In order to mitigate the transition risks, the firms should put in place appropriate governance with senior sponsorship and appropriate management attention. About a half of the represented firms have not yet established a robust IBOR project governance and concrete implementation roadmap.
- Finally, the IBOR transition requires strategic change management considerations: prior to defining the client communication strategy, the firms first need to implement their internal communication plans and raise awareness of their client facing personnel.
In the series of blog posts to follow, we will share insights from the four topics covered in the panel and will elaborate on the results of the related industry survey conducted with the participants.
- Market expectations regarding the timeline for development and adoption of the new ARR products
- Valuation, liquidity, discounting impacts
- Communication and legal aspects of the IBOR transition
- Governance and transition roadmap at the horizon of 6 to 12 months