OCIE Launches Exam Initiative on LIBOR Transition Preparedness
The SEC’s Office of Compliance Inspections and Examinations said it will conduct examinations to assess firms’ efforts to prepare for the expected discontinuation of LIBOR and their transition to alternative reference rates. Among other things, OCIE will review whether and how firms have evaluated the potential impact of the LIBOR transition on business activities; operations; services; and customers, clients, and investors. For example, OCIE will review the plans that firms have developed and steps they have taken to prepare for LIBOR discontinuation, including as applicable: (1) The firm’s and investors’ exposure to LIBOR-linked contracts that extend past the current expected discontinuation date, including any fallback language incorporated into these contracts; (2) The firm’s operational readiness, including any enhancements or modifications to systems, controls, processes, and risk or valuation models associated with the transition to a new reference rate or benchmark; (3) The firm’s disclosures, representations, and/or reporting to investors regarding its efforts to address LIBOR discontinuation and the adoption of alternative reference rates; (4) Identifying and addressing any potential conflicts of interest associated with the LIBOR discontinuation and the adoption of alternative reference rates; and (5) Clients’ efforts to replace LIBOR with an appropriate alternative reference rate. OCIE’s alert also included an appendix of information and documents that may be used in these examinations.