IA launches roadmap to guide asset managers to post-LIBOR world

Thursday 21 February 2018

The Investment Association (IA) has today launched a roadmap to guide asset managers through the transition from LIBOR to SONIA, the new risk-free rate.
The roadmap, jointly produced with Oliver Wyman, outlines a series of steps designed to help asset managers complete the transition by 2021, the date by which the FCA plans to retire the benchmark rate.

With over $240 trillion in products that currently reference LIBOR, asset managers are advised to initiate their plans now to deal with the complexity of the transition, much of which will also depend on the development of market conventions and liquidity over the coming years.

As a first step, the IA recommends that asset managers take the following action:

• Identify and mobilise dedicated resources to address the transition process.
• Initiate internal and external communications on the process for the transition, including engaging with clients.
• Build an inventory of exposures and understand the economic impact and operational impact.
• Begin the transition of investment activity where this is sufficient liquidity, for example in sterling denominated derivatives.

Galina Dimitrova, IA Director for Capital Markets, said:

“The transition date is fast approaching and we are encouraging firms to set their plans in motion to ensure a smooth switch to SONIA.

“We look forward to working with the asset management industry, FCA and the Bank of England to help firms take the necessary steps to complete the transition from LIBOR by the end of 2021.

“Global coordination across jurisdictions, currencies and asset classes is also critical to the success of this process. We represent global firms with clients and regulatory obligations in many countries. Each jurisdiction is moving at its own pace, with slightly different rates coming out of the end of the process. Firms must therefore not only focus on SONIA, but other global benchmarks as well.”

Jennifer Tsim, Partner, Financial Services, Oliver Wyman, added:

“The LIBOR transition will be complex, and some asset managers will be considerably more impacted by the transition away from LIBOR than others. However, virtually all firms will need to make key strategic decisions and operational changes, as well as manage potential conduct, economic, legal and operational risks across jurisdictions.

“Importantly, clients will need to be part of the decision-making process and asset managers need to mobilise transition plans now to prepare for transition before the 2021 deadline."

Based on a survey of IA members representing £5 trillion assets under management, the roadmap also identifies three areas in which asset managers are currently using LIBOR, each of which need to be managed through the transition.

Asset managers are however already engaged in the transition, with almost three-quarters of respondents stating that they had already invested in SONIA instruments in 2018.

• Investments: Asset managers hold LIBOR-based products in their portfolios, with 80% of respondents stating that they use LIBOR-based derivatives for hedging.
• Benchmarking: LIBOR is used by asset managers as a benchmark or performance target for their funds or mandates. 90% of respondents stated that they use LIBOR as a benchmark for at least one fund.
• Operations & admin: LIBOR is used in a variety of calculations, systems, and models for operations and administration, with 15% of respondents stating that they have a critical dependency on LIBOR for accounting standards.

ENDS

Notes to Editors

• Survey responses included 20 IA members covering 65% of the IA assets under management.

For further information, please contact:

• Ben Rathe, Senior Communications Manager: [email protected]
• Helen Ayres, Communications Manager: [email protected]

T +44 (0)20 7831 0898
IA press office: [email protected]

About the Investment Association (IA)

• The IA champions UK asset management, supporting British savers, investors and businesses. Our 250 members manage £7.7 trillion of assets and the asset management industry supports 100,000 jobs across the UK.
• Our mission is to make investment better. Better for clients, so they achieve their financial goals. Better for companies, so they get the capital they need to grow. And better for the economy, so everyone prospers.
• Our purpose is to ensure investment managers are in the best possible position to:
  • Build people’s resilience to financial adversityo Help people achieve their financial aspirations
  • Enable people to maintain a decent standard of living as they grow older
  • Contribute to economic growth through the efficient allocation of capital.
• The money our members manage is in a wide variety of investment vehicles including authorised investment funds, pension funds and stocks and shares ISAs.
• The UK is the second largest investment management centre in the world, after the US and manages 35% of all assets managed in Europe.

About Oliver Wyman
 

Oliver Wyman is a global leader in management consulting. With offices in 50+ cities across nearly 30 countries, Oliver Wyman combines deep industry knowledge with specialized expertise in strategy, operations, risk management, and organization transformation. The firm has more than 5,000 professionals around the world who work with clients to optimize their business, improve their operations and risk profile, and accelerate their organizational performance to seize the most attractive opportunities. Oliver Wyman is a wholly owned subsidiary of Marsh & McLennan Companies [NYSE: MMC]. For more information, visit www.oliverwyman.com. Follow Oliver Wyman on Twitter @OliverWyman.