LIBOR Retirement: Are You Prepared?
LIBOR, which stands for the London Interbank Offered Rate, is the most used interest rate benchmark for a wide variety of transactions, including credit agreements, bonds and qualified financial contracts (QFCs). Due to perceived shortcomings and structural weaknesses associated with LIBOR, the UK’s Financial Conduct Authority (FCA) mandated that the benchmark, published in five currencies, be retired by 2021, creating a significant contractual shift for the financial services industry.
This shift is estimated to impact over $350 trillion worth of contracts, and to manage the transition, companies and financial institutions must review every aspect of their business that utilizes LIBOR and all other IBOR-based benchmarks. The associated risk management and remediation are often time-consuming and costly, posing key challenges during the review process.
In response to the challenges surrounding the LIBOR phaseout, we partnered with Accenture to share expert insights on how to approach the impending changes and prepare contractually.
Below are highlights from this webinar. These organizational best practices combined with the application of DocuSign Insight and the LIBOR Insight Accelerator provide pivotal insight to guide finance professionals in navigating the remediation process.
Understand your contract landscape
Identifying transactions that are subject to the LIBOR benchmark is the critical initial step. Companies and financial institutions must identify all legal documents tied to the LIBOR benchmark in order to manage the transition. Financial institutions will want to understand their contract landscape in order to begin segregating contracts into buckets based upon factors such as expiration/tenor, identification of the form of IBOR benchmark and potential rate adjustment or fallback options.
The ability to identify templates and any necessary modifications quickly and accurately, allows organizations to:
- Put into practice an expedited and defined workflow
- Quickly assess what should be done with the templates and push them into defined workflow processes
- Devote more dedicated review time for contracts requiring a unique remediation approach
Additionally, patterns may arise that also allow organization to define a remediation workflow for non-template contracts.
Establish a robust and well-managed transition program
A well-defined and cross-functional transition program is vital to a remediation of this scale. Organizations must establish a governance structure across impacted business lines, allocate budget and identify clear workstreams for effective transition. The success of the LIBOR remediation workflow plan will hinge upon the ability to:
- Clearly identify and understand the nature and scope of the impacted contract landscape
- Efficiently take the steps needed to transition away from LIBOR
Organizations can minimize risks and challenges through an established and clearly defined remediation program that allows for early engagement of contracting parties, regulators and industry associations.
DocuSign customers have a distinct advantage when it comes to assessing contractual risk and planning for remediation. The DocuSign Agreement Cloud allows you to bring systematic rigor to the three key stages of LIBOR transition:
- Automating your assessment
- Establishing a remediation framework
- Streamlining the negotiation and execution of new contracts
LIBOR Insight Accelerator, our pre-built analytic solution, allows organizations to accelerate contract review and remediation efforts for their critical financial transactions. By identifying legal documents based on the presence of LIBOR-related terms, the LIBOR Insight Accelerator delivers unparalleled insight and automation to streamline the LIBOR review process.
The DocuSign Agreement Cloud streamlines the end-to-end process of contract generation. It identifies signatories and routes and captures electronic signatures on any device. Once completed, DocuSign can update and trigger downstream processes seamlessly.
There’s no silver bullet to solve the LIBOR phase-out problem. However, having an end-to-end, modern system of agreement will provide the intelligence, workflow and automation necessary for success.
Learn more about how to manage the transition away from LIBOR in this webinar The End of LIBOR: Your navigation to a new normal.