LIBOR Transition: a disruption across global business

The London Inter Bank Operating Rate (LIBOR) is the average interbank interest rate at which a selection of banks on the London money market are prepared to lend to one another. Over the years, LIBOR and similar rates like the Euribor have become the defacto standard for benchmark rates and are at the heart of a wide spectrum of global cash, derivates and loan products.

LIBOR referencing contracts have notional value of hundreds of trillions dollars. According to recent ISDA metrics, 80% of de rivatives contracts with over 300 Tn value and 97% of US syndicated loans with $3.4 trillion value reference LIBOR.

However, in recent times, the robustness of the IBOR rates has come under increasing scrutiny due by controversies of rate manipulation as well as reduction in liquidity after the financial crisis.

In July 2017, the Financial Conduct Authority (FCA) announced its decision to stop publishing LIBOR by the end of 2021. This has necessitated financial institutions and corporates to create a strategy to transition to alternative Risk Free Rates (RFRs) like Sterling Over Night Index Average (SONIA) and SOFR (Secured Overnight Financing Rate).

Management of Legacy Exposure, Legal Risk Management & Closure

A key component of the LIBOR Transition Program in any institution is the impact assessment of “at-risk” legacy contracts referencing LIBOR, exposure calculation and the legal risk management is a time consuming and high cost process if done manually. EvoluteIQ’ has developed an AI-based solution to address this requirement.

The solution enables organisations to process legacy contracts to programmatically organise and extract relevant data / clauses in both structured and unstructured data. It can then use Machine Learning to calculate exposures and finally trigger reporting and Re-papering workflows.

Key Features of the Solution:

Relevant for market participants including Investment Banks, Hedge Funds, Commercial and Retail Banks, Pension Funds, Corporates, Non-bank Financial Institutions, Insurance Companies, Asset Managers, Private Equity and Corporates

Supports legacy contracts across products including Derivates and ETDs, Securitized Products, Loans, Mortgages and Bonds

Handles different jurisdictions and standards including ISDA and FBF

Unique pay-as-you-go (PAYG) commercial model to mitigate upfront investments and risks

Workflow integration with relevant core systems for Document Management, Risk Management, Contract Management, CRM Systems and Data Lakes.

Go live in as less as two months, depending on the contract volumes

Potential benefits realisation of upto 70% reduction in manual effort across teams including legal, finance, risk and compliance and upto 3X improvement in speed-to-compliance.

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