SEC Examination Initiative: LIBOR Transition Preparedness

June 18, 2020 – Risk alert on SEC examination initiative related to LIBOR transition preparedness. OCIE identified registrant preparedness for the transition from LIBOR as exam priority and intends to engage with registrants to assess preparations for expected discontinuation of LIBOR and the transition to an alternative reference rate.

Discontinuation of LIBOR, currently expected after 2021, could have a significant impact
on financial markets and may present a material risk for certain market participants, including: Investment Advisors, Broker/Dealers, investment companies, municipal advisors, transfer agents, and clearing agencies. Preparation for the transition away from LIBOR is essential for minimizing any potential adverse effects; risks exacerbated if the transition to alternative not completed timely. Alternative Reference Rates Committee and others are working to ensure a successful transition.

OCIE will conduct exams to assess efforts on discontinuation and transition to alternative rates. Will review whether the registrant has evaluated the potential impact of LIBOR transition on the firm’s business activities, operations, services, customers, clients, and investors. Review firm and investor exposure to LIBOR-linked contracts that extend past current expected discontinuation date, including fallback language incorporated into contracts. Firm operational readiness, including any enhancements or modifications to systems, controls, processes, risk or valuation models for transition to a new reference rate. Disclosures, representations, reporting to investors regarding its efforts to address LIBOR discontinuation, and the adoption of alternative reference rates. Identifying and addressing conflicts of interest on discontinuation and adoption of alternatives. Clients’ efforts to replace LIBOR with an appropriate alternative reference rate.

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