IBOR Transition for global banks
Completing the review and repapering across many thousands of commercial and capital markets financial agreements, for numerous global financial institutions impacted by the transition away from IBORs.
The challenge
In response to the transition away from IBOR, many banks had to complete major exercises to prepare themselves to run different interest rate calculations. They also had to remediate existing loans. This involved two tasks. First, understanding their exposure to IBOR across their entire agreement universe, typically without a central contract repository or data store, therefore necessitating a document location, sorting, and review exercise. Second, a systematic outreach, amendment and re-negotiation exercise undertaken simultaneously across all affected agreements. An additional challenge was that the process was happening across the industry, globally, at the same time, creating capacity issues and meaning clear market practice was not established at the outset.
The solution
Solution development for IBOR began over a year before the first transactions commenced. Our starting point was to build a fully integrated team; not only incorporating specialists across many distinct disciplines, but enabling the team to sufficiently understand each other’s ways of working. As well as incorporating the full suite of lending, derivatives and regulatory lawyers, alongside risk advisory consultants, our solution emphasised the operational building blocks required to deliver this type of project at scale:
- Process: A fully mapped process, with teams trained against it and guides and materials in place. This was designed in detail in advance, but on an adaptable basis, enabling variants to be used across a range of clients, from globally systemically important banks, to regional banks and other financial institutions.
- Technology: A full, robust and tested technology stack which reflects the process, designed in a modular fashion so tools can be swapped in and out to meet the specific needs of institutions. While many of the tools in LIBOR remediation are mature and well understood (e.g. contract workflow and automation) a critical part of the project is the effective use of machine learning / AI for document review. This is an important aid to human reviewers, and can materially reduce the time spent sorting and reviewing contracts to extract data. Before beginning the work we undertook a benchmarking process of six major providers, so that we could work with any of them and offer full integration with the wider solution.
- Flexible Resourcing: A comprehensive and flexible resourcing structure supporting separate project teams dedicated to specific institutions, with a central “product” team maintaining the process, system build and best practice. This was supplemented by a resourcing plan for each project that allowed teams to be scaled up and down as needed, from a large and experienced resource pool.
- Project Management: A dedicated Project Management Office, overseen by a Programme Manager involved at the outset of each IBOR transition mandate, and able to co-ordinate all elements of the work from a position of considerable experience and understanding.
Results and benefits
- Hundreds of thousands of documents sorted, reviewed and amended, managed in a way that creates as little disruption as possible to clients’ customers or their internal operations. Delivery is in accordance with legal and compliance advice, and the client’s best practice and institutional priorities, with sign off by the client.
- Live reporting to the client’s internal project teams and senior management.
- Structured contract data gathered and accessible on an ongoing basis, supporting future management of loan and derivatives portfolios.
- A scaled solution, consisting of simultaneous support for numerous global and regional banks, development finance institutions, and other financial institutions, delivered in such a way that the shared coverage improves planning and learning without capacity constraint.
