Considerations for Boards on LIBOR Transition
Despite recent world events, the push to transition out of LIBOR appears to be on schedule. A recent white paper from consulting firm EY warns firms to be aware that “the COVID-19 pandemic will not stop or slow this transition. The Financial Conduct Authority (FCA), which along with the Bank of England oversees the submission of LIBOR, has stated that firms cannot rely on LIBOR being published after the end of 2021. … Similarly, the Financial Stability Board has made clear that the benchmark transition remains a priority despite the pandemic.” The EY paper discusses considerations that corporate directors can take up with their public companies as they consider the transition from LIBOR to other benchmark rates. For fund directors who have an interest in the topic, the article could help inform conversations with management about the financial and non-financial risks associated with the transition. EY lists dozens of questions directors may consider with firm management and below are a sample.
- Have transition risks (e.g., reputational, financial, operational, conduct) been assessed and mitigation plans formed?
- Is the firm prepared to respond to rising requests from regulators?
- Has the firm assessed the technology impacts, including vendor dependencies, that may impact transition timelines?
- Has the firm adequately assessed its exposure to litigation risk given the breadth of contracts impacted and potential for various outcomes?