SEC Issues LIBOR-Transition Related Risk Alert

As the cessation of U.S. Dollar LIBOR, the London Interbank Offered Rate, quickly approaches on June 30, 2023, the Securities and Exchange Commission recently released a Risk Alert highlighting observations from recent exams of investment advisers and investment companies on LIBOR transition-related risks. The Risk Alert highlights that many of the firms examined had “significant direct exposure to LIBOR-linked contracts,” while others with larger retail client bases tended to have “more limited and indirect exposure.” The SEC staff observed that many investment advisers and investment companies have already taken certain measures to prepare for the upcoming transition. These measures include:

  • Risk Management: Keeping informed on the transition, internal training and guidance, and treating the transition as an “enterprise risk governance matter.”
  • Operations: Engagement with service providers, systems testing, and reconciliation of settlement and payment processes.
  • Portfolio Management: Early identification of exposures, review of fallback provisions, and internal controls around LIBOR-linked contracts.
  • Fiduciary Responsibilities and Investor Communications: Finding an appropriate approach to fulfilling fiduciary role, disclosing risk, and mitigation of conflicts of interest.

The Risk Alert notes that “[f]irms have made significant efforts to prepare for the transition away from LIBOR” and encourages all firms to consider the preparation and resources needed as the transition away from U.S. Dollar LIBOR approaches on June 30.

Click here to read the SEC’s Risk Alert on LIBOR transition preparedness.