FINRA – Shares Practices Firms Implemented to Prepare for the LIBOR Phase-out

August 5, 2020 – Reminder to evaluate exposure to LIBOR and review preparedness to manage the phase-out. Surveyed representative cross-section of member firms, including firms with significant trading volume and positions in LIBOR-linked securities

Survey Results
While large firms, notably large brokers-dealers affiliated with BHCs, implemented extensive programs to prepare for the phase-out, others had made only limited efforts. Firms developed, implemented governance frameworks for phase-out include assigning responsibility for preparing, managing to specific business units, project teams, and PMOs. Include staff from departments across the firm (e.g., Legal, Compliance, Risk, Technology, Operations, business units) in planning efforts to provide a cross-functional view. Identify policy, organizational, process, and information system change requirements for post-phase-out.

Firms that evaluated financial risk exposure to LIBOR, began by identifying their inventory and customer holdings of products and contracts maturing or rolled over. Classify exposures into categories such as derivatives products, cash products, and others. Assessed operational risk exposures by developing an inventory of business processes, business units, information systems, and vendors impacted by the phase-out. Conduct inventory of market, credit and liquidity models that reference LIBOR, identifying alternate reference rates, and testing with appropriate new reference rate.

Determine responsibility between introducing, clearing firms for operational functions. Firms also reviewed and identified options for alternative reference rates, reviewed their exposure to legal risks, as well as ongoing staff and customer education.

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