preparing content for the libor transition

Preparing Content for the LIBOR Transition

https://www.wbresearch.com/insights

https://www.sdl.com


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Contents

Contributor

03 Methodology

04 Introduction by SDL

05 Chapter One – Preparing for the LIBOR Transition

08 Chapter Two – Managing LIBOR Content Risk

12 Conclusion

13 About SDL

13 About WBR Insights

David Hetling, Global Marketing Director for Regulated Industries, SDL

David is Global Marketing Director for Regulated Industries at SDL. He is responsible for defining the strategy and go-to-market plan for SDL’s solutions into the Financial Services, Legal and Life Sciences sectors. Working closely with global sales teams, he builds on SDL’s strong heritage in these industries to position SDL’s solutions against the particular language and content management challenges of heavily-regulated organizations.

Prior to joining SDL in 2019, David was Head of Alliances and Marketing at D4t4 Solutions plc, a provider of software and managed services for data management and enterprise analytics. David has also held senior marketing roles at Oracle Corporation and Bull Information Systems.

David holds a BA (Hons) in Marketing from Bournemouth University and is a Member of The Chartered Institute of Marketing.



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Methodology

In Q4 of 2020, WBR Insights surveyed 60 Heads of Risk, Compliance, Audit and Communications from across tier one sell-side firms across APAC, EMEA and North American regions to find out how their firms are planning to manage their content and paperwork updates for the transition from LIBOR to Risk-Free Rates (RFRs).

The research aimed to gain a greater understanding of how sell-side banks are updating, remediating and repapering their vast quantities of documentation that has been built up over 40+ years of LIBOR use before RFR regulations were in place.

The survey was conducted by appointment over the telephone. The results were compiled and anonymized by WBR Insights and are presented here with analysis and commentary from SDL’s contributor.

How many people work for your company?

45% 42%

13%

1,000to

5,000

More than10,000

5,000to

10,000

50%

25%

0%

In which country is your company headquarters located?

USUKChina/Hong KongJapan

33%

33%

17%

17%



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Chief Risk Officer

Head of Marketing

Head of Risk/Risk Management

Chief Compliance Officer

Director of Communications

Chief Auditor

Head of Internal Audit

Head of Compliance

Chief Marketing Officer

Marketing Director

Chief Risk Officer

Head of Marketing

Head of Risk/Risk Management

Chief Compliance Officer

Director of Communications

Chief Auditor

Head of Internal Audit

Head of Compliance

Chief Marketing Officer

Marketing Director

Equities

Credit

Pensions and insurance

Fixed income

Debt

Bonds

Loans

Derivatives

What best describes your job title?

What products does your firm currently provide? Please select all that apply

Introduction by SDLLIBOR, the London Inter-Bank Offered Rate, is often identified as being the world’s most important number, with estimates on the value of transactions that it underpins extending to as high as $400 trillion. It has also had a long and somewhat checkered history, culminating in the rate-fixing scandal of the early 21st century, the fallout from which is still being felt in some jurisdictions today.

The underlying mechanism that enabled manipulation of LIBOR is one of the reasons that it is being phased out, along with a steady decline in the primary market from which it is derived. As such, the UK’s Financial Conduct Authority (FCA) concluded that LIBOR is no longer a robust enough rate-setting mechanism for international benchmarks and announced in 2017 that banks would have until December 2021 to cease submitting rates for the calculation of LIBOR and base their transactions and products instead upon one of the Risk-Free Rates (RFRs) administered from the global financial centers of London, New York, Frankfurt, Zurich and Tokyo.

The challenges in addressing readiness for this transition are many and varied, encompassing complex legal, financial, regulatory and procedural undertakings. Much has been written since 2017 about the first three of these, with law firms, financial institutions on both the sell-side and the buy-side and global regulators all driving home the message to leave no stone unturned in preparing operations for life after LIBOR. Much less has been said, however, about the impact of the transition on the significant volumes of content that will need to be updated, remediated, rewritten and translated.

Most content types – internal communications, customer updates, training materials, policies and procedures and so on - tend to be among the final considerations in a regulatory change and the evidence of this research is that this has largely been the case for this update too. Such is the volume of content, however, that the need to address this area in a measured and ongoing way cannot be understated. This relates also to the repapering of contracts, the content type of most concern, which requires expert assistance in the updating process as well as subject matter expertise in translating intricate multilingual legal terminology for global stakeholders.

This update process is also taking place with the backdrop of one of the most unprecedented disruptions of modern times; the Covid-19 pandemic has undoubtedly impacted preparations for regulatory changes across multiple industries but any concessions given to the LIBOR transition have been minimal and the December 2021 deadline still applies to virtually all applications of LIBOR.

Under these circumstances, firms identified in this research as either still progressing or yet to commence their preparations should urgently address the content challenge, audit their LIBOR-related content and engage with appropriate advisors to begin the process of content preparation.

18% 85%

15% 82%

15% 75%

12% 67%

10% 58%

8% 52%

52%7%

7% 50%

5%

3%



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Chapter One – Preparing for the LIBOR Transition

LIBOR (the London Inter-Bank Offered Rate), is an important and widely-used interest rate mechanism that many financial services organizations are used to working with - it was the reference point for a wide range of financial products and services for several decades before it became discredited in a long-running manipulation scandal that was uncovered in 2012. For this reason, and others, it is being wound down in favor of alternative Risk-Free Rates (RFRs), meaning that institutions now have to update their contracts and other communications materials in time for the proposed ending of LIBOR support in December 2021.

According to our research, 60% of respondents’ organizations have been planning for the transition from LIBOR to RFRs for at least a year. Although this is encouraging, it does still point to a significant minority of 40% that have been planning for less than a year or have not yet started the process at all; this suggests that there may well be some sell-side firms that have greatly underestimated the complexity and impact that the transition to RFRs will have on their operations.

Experts in the financial services industry have cited concerns for sell-side firms that have not been quick enough to implement these changes. The fear is that they will be caught in the maelstrom of administrative headaches if they miss the deadline, particularly due to delays caused by the pandemic. 32% of respondents said their organizations LIBOR transition plans have been upended by the COVID-19 pandemic and that they will require assistance for them to meet the 2021 deadline.

Of the 32% of respondents who have experienced disruption to their LBOR transition plans in 2020, 64% have said that the specific area for which their firms would need third-party assistance is from legal advisors. The legalities of transferring to the new RFRs are indeed highly complex and are a source of great concern for many firms.

82% of respondents said their organization is also using additional Inter-Bank Offered Rates (IBORs) in other international markets, especially the Americas and EMEA. This means that these firms have to adhere to the regulations and laws in all of these regions when implementing RFRs, which will increase the workload and extend the complexity.



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64% of respondents said their organisation has been planning for the transition from

LIBOR to Alternative Risk-Free Rates (RFRs) from under a year to over two years

32% of respondents said that COVID-19 has disrupted their firm’s plans to make

the transition from LIBOR to RFRs and that they will require additional assistance to

meet the deadline

How long has your organisation been planning for the transition from LIBOR to Alternative Risk-Free Rates (RFRs)?

Has disruption caused by the COVID-19 pandemic disrupted your plans to make the transition from LIBOR to RFRs?

More than two yearsBetween one and two yearsUnder a yearWe have not started yetWe do need to make the transition from LIBOR to RFRs

Yes, we have experienced disruption and will require

additional assistance

No, we were well-progressed before the pandemic and

remain on schedule

Yes, we have experienced disruption and it has put our plans

behind schedule

No, we have not experienced any disruption in this area

from the pandemic

Yes, we have experienced disruption but remain on schedule

32%

32%

28%

8% Although it is encouraging that only a small proportion of institutions have not yet commenced their preparations, there remains a large cohort of respondents that have been working on this transition for under two years. Given that the starting gun was fired in the summer of 2017 by the UK Financial Conduct Authority, and that the urgency of the transition was clearly stated then (and regularly since), this data will include firms for whom the amount of work still required to achieve the transition will be problematic.

The transition to RFRs is a complex undertaking – viewed by many as the most significant regulatory change in financial services for at least a decade – and the challenges that still need to be overcome may not even be fully appreciated yet, let alone scoped and initiated.


With more than half of respondents reporting disruption to their transition plans because of the pandemic, there may be a necessity to accelerate preparations with outside assistance.

This transition has uncovered previously unknown complexities in relationships with partners, contract arrangements, documentation and internal processes. The unexpected, unprecedented and unplanned nature of the pandemic has only exacerbated the problem and it is perfectly understandable that resources have become stretched under such circumstances.

In this environment, there is an opportunity to leverage the skills and expertise of outside consultants or agencies to pick up the slack. Given the many years of LIBOR use, there is a strong community of knowledge on this subject which might enable firms to bridge gaps that have been identified following this year’s disruption.


32%

8%

31%

7%

22%



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For those that answered ‘yes’, that their firms have experienced disruption to their LIBOR transition plans due to the pandemic, 64%

said they would require additional help with their transition plans from legal advisors

If you answered yes to the previous question, from whom will you require additional assistance in your transition plans from LIBOR to RFRs? Please select all that apply

Legal advisors

External consultancy

firms

Regulators Other third parties

A transition of this scale and complexity is fraught with risk. The scale, intricacy and cross-border nature of LIBOR transactions, coupled with the significant financial amounts often involved, means that the legal considerations for this transition are a top priority. This fact is amplified later in this report when we consider the need for documentary revision: three of the top five document types being prioritized for updating were forms of contract.

We have witnessed significant interest from law firms advising financial institutions in this area and it remains a focus area for attention. LIBOR is a foundation rate used in a large number of legacy transactions as well as ongoing multi-year loan agreements; indeed, LIBOR continued to be referenced in a multitude of agreements extending beyond the end of 2021 even after the FCA made its announcement in 2017.

It is also a very technical area from a legal perspective because of the breadth of financial instruments impacted by its use as well as the risk exposure for both borrowers and lenders in deciding on mutually agreeable alternative rates.


64%

21% 14% 0%

44% of respondents said their organisation is using other Inter-Bank Offered Rates

(IBORs) in the Americas and EMEA international markets

Is your organisation using other Inter-Bank Offered Rates (IBORs) in any of your international markets?

Yes, in more than one of these regions

Yes, in the Americas

Yes, in EMEA

No, we are only using LIBOR

Yes, in APAC

Less than a fifth of respondents identified that LIBOR is the only rate-setting mechanism in use by their organisation; the transition is therefore somewhat ring-fenced within those firms as well as giving them greater clarity in terms of the transition timeframe.

For the significant majority (82%), the LIBOR transition is the start of a longer process of IBOR reform as other jurisdictions seek to align their rate-setting mechanisms with more acceptable modern alternatives, especially Risk-Free Rates (RFRs).

IBORs have been the standard for rate-setting for so long now that it is as much a matter of convention as it is of simplicity and global acceptability. IBORs (other than LIBOR) offer an alternative option in some territories where there is a desire to transact within a confined locality or avoid exposure to other currencies. However, the danger from ongoing use of IBORs is now broadly viewed as untenable due to credit risk as well as the unsecured and forward-looking approach used in their operation; for these reasons, IBORs globally will undergo progressive reform or replacement for some years to come.


23%

18%

22%

15%

22%



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Chapter Two – Managing LIBOR Content Risk

Risk around LIBOR comes in many forms. The technical, legal and transactional challenges have been well documented but there are other areas of risk that have perhaps been neglected. One of these is content risk, a key consideration when operating in heavily-regulated sectors but one which is frequently addressed late by firms, if at all.

The content challenges for this particular regulatory transition can be demarcated into:

• accumulated content built up over 40 or so years of LIBOR operation; and

• new content that needs to be created to support the transition.

Accumulated content is the most voluminous and complex area of content associated with the LIBOR transition. Vast quantities of content have been created since LIBOR became the de facto standard for rate-setting in the 1980s; not all of it needs to be updated of course but part of the complexity lies in identifying the areas of documentation that are still relevant and in use and classify them for updating accordingly.

Unsurprisingly, the most critical area of accumulated content has been identified by this research as contracts but other areas are also important. The principal ones are external policies documentation, training materials and internal policies and procedures, all of which are crucial to the transactional and operational changes required to successfully make the transition to RFRs.

In terms of new content, external customer communications has been equally prioritized alongside contracts for attention by respondents. The importance of this finding is encouraging and stresses the desire among firms to ensure that key external stakeholders are at the forefront of their communications initiatives.

Increased complexity surrounds content provision in financial services – constantly changing regulations, the increasing demands for optimizing the customer experience, the drive to communicate consistently across digital channels and, impacting all of these areas, the steady growth in global markets for multinational firms most at risk from the LIBOR transition. Ensuring uniformity of messaging internationally - embracing the cultural nuances of each country - is a key pillar of successful communication and an area that is also touched upon at the end of this research.



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36% said that their firms are managing the updating of documentation in preparation for

LIBOR transition internally

How are you managing the updating of documentation in preparation for the LIBOR transition?

We are managing this internallyWe are using external agencies to assist with thisWe are using a blend of the twoWe do not have any documentation that needs to be updated for this transition

36%

32%

2%

31%

The precise applications of LIBOR vary between financial institutions; its use varies from organizations being heavily dependent on it to others who have made a systematic and sustained movement away from it, even before the 2017 announcement from the FCA. This was in part due to the far-reaching scandal that emerged in 2012 when the widespread manipulation of LIBOR was uncovered and from a subsequent desire to be disassociated from that episode.

As such, there is naturally a desire to remedy the transition challenge from within, where the best understanding resides and in defense of the sensitive and confidential nature of internal operational processes. In addition, the planning process for many institutions, especially larger organizations with the greatest exposure to LIBOR, started early and their progress has been steady; this has enabled them to rely largely on internal expertise.

Nevertheless, where complexity, urgency and sheer workload have demanded it, a large proportion of firms have also leant on the expertise of external agencies. This trend is likely to accelerate for companies of all sizes as the deadline approaches.


The majority of our respondents are using legal advisors to assist them in updating their

documentation in preparation for LIBOR transition

What types of external agencies are you using to assist with updating of documentation in preparation for the LIBOR transition? Please select all that apply

Legal advisors

Audit firms

Specialist consultants

Translation providers

Other (please specify)

We remarked earlier that the heavy bias towards all forms of contract has necessitated the need for legal expertise, particularly in response to the technical nature of this documentation.

It is also interesting to note the extensive involvement of audit firms too. Their role is twofold; first, to assist with support for the discovery phase in identifying the full range of materials impacted by LIBOR and categorizing which of these need to be updated and second, with their rapidly-expanding legal expertise they are also able to augment the advice provided by established law firms in this area.

In line with other regulatory updates, there is also a significant dependency on expert consultants; again, the multifaceted challenges of the transition are exacerbated by the decades over which LIBOR has operated. Much has changed in financial markets during that period so the expertise accumulated by specialists over time will be a critical element of the transition for many firms.

The broad cross-border documentary challenge has also necessitated the widespread use of translation providers too and we will expand on this further at the end of this report.


53%

22%

49%

0%

40%



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Our respondents said that external update communications, customer contracts and external policies documentation were the types of content that are included in their firms’ initiatives to update their materials

What types of content are included in this initiative to update materials? Please select all that apply

External update communications

Customer contracts

External policies documentation

Inter-bank contracts

Other contracts

Internal update communications

Training and/or e-learning material

Internal policies and procedures

Product and/or marketing material

Other documentation

As a content category, contracts are by some margin the most urgent area for attention and this is demonstrated by the widespread need for assistance from legal advisors; the specific need to update customer contracts more than any other is testament to the breadth of agreements that use LIBOR as their foundation. Add to this the imperative of maintaining good customer relationships with minimum disruption to ongoing revenue streams and it is not hard to understand why this area is so essential.

This explains also the importance attached to external communications although there is a regulatory angle here as well as optimizing the client experience. Most firms measure their performance by levels of customer satisfaction; proactive communication is core to this approach but they are also obligated to act transparently and honestly. The avoidance of market disruption has been a key driver in the motivation for the LIBOR transition so progress is being closely monitored by global watchdogs.

Finally, the need to address internal training and procedures is also noteworthy. It was the abuse of rules and procedures that underpinned the manipulation of LIBOR early this century, leading stakeholders to question the integrity of financial institutions at a time when the industry was rebuilding its reputation after the 2007 financial crisis. Firms now clearly recognize the need to address the irrefutable reliability of their governance as well as communicating their internal controls as a means to build trust among both internal and external stakeholders.


52%

52%

44%

44%

39%

37%

28%

26%

2%

0%



1111

88% of respondents are required to update documentation in multiple languages for at

least one region

Are you required to update documentation in multiple languages for cross-border or international LIBOR arrangements?

Yes but only for two of these regions

Yes, only for APAC

Yes, only for EMEA

Yes, only for the Americas

No, we have no multilingual requirements for LIBOR documentation

Yes, we have to for all of these regions

Driven by the concentration of LIBOR transactions in London and New York, much documentation is biased towards English. Nevertheless, the global nature of the finance market means that considerable documentation still needs to be localized for other geographies and, in many cases, multiple regions. This is particularly important for contracts where the risk of misinterpretation needs to be eradicated.

It is also crucial for customer communications to be delivered in native languages too, from both the perspective of ensuring unambiguous comprehension but also for an optimum customer experience. Clearly, many organizations recognize the importance of this and we are witnessing significant interest for localization of customer communications, press releases and notifications.

A final point is that translation of LIBOR materials takes firms into the realm of regulated content; it is not enough to rely on word-for-word translation – the context and purpose of the content is vital. For instance, contracts should be translated not just by a linguist, but by one with specific legal subject matter expertise and, preferably, a knowledge of the regulatory framework and terminology in which the translation is being undertaken. Likewise, the sensitive nature of LIBOR materials requires that they be handled with the utmost rigor applied to security and confidentiality. Finally, planning this element of the update process as far as possible in advance gains you access to the appropriate level of service expertise required for translation of specific content types; it is also very likely to save the unnecessary cost of being squeezed into a dwindling timeframe when expert resources become scarcer as well as more expensive.


29%

14%

21%

12%

21%

2%

0%



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Conclusion

Sell-side firms are under immense pressure to ensure their organizations are ready to transition away from the LIBOR interest rate-setting mechanism to RFRs by the winter deadline of 2021. However, the global pandemic has made this increasingly difficult for banks, market makers and alternative liquidity providers to get their internal processes aligned ready for this change.

According to our research, 32% have experienced disruption to their LIBOR transition due to the impact of the Covid-19 pandemic and of that number, 64% said their organizations will need third-party assistance from legal advisors in order to make the deadline.

The Financial Conduct Authority (FCA), Bank of England and members of the Working Group on Sterling Risk-Free Reference Rates announced that the financial services industry, including sell-side firms cannot rely on LIBOR after the end of 2021, in spite of the impact the Covid-19 pandemic has had this year on preparedness.

One of the main challenges for the sell-side in their preparation for the LIBOR transition in 2021, is the need for updating their documentation in multiple languages for their cross-border clients and partners around the globe. According to our research, the majority of our respondents said that their external communications from customer contracts to external policies would need to be included in their organizations’ initiatives to update their materials.

Considering that most of the LIBOR documentation has been written in English to accommodate financial transactions from London and New York. This will be a huge undertaking to avoid miscommunication and misunderstanding. Both local level and national level communications, as well as ensuring that regulatory language is properly explained and included where necessary, will be important for sell-side firms to get right in their preparation.

The majority of our respondents said their organizations are relying heavily on legal advisors to ensure their documentation is updated correctly. Given the immense complexity that the LIBOR transition is posing for the sell-side, this does not come as a surprise due to the technical language that they have been written in. What is encouraging though is that other advisors – auditors, consultants and translators – are not far behind; this suggests that as firms approach the top of the curve in their transition preparations, they are broadening out the reach of their initiatives to embrace additional specialists to support their adherence to the deadline.



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About SDL

About WBR Insights

SDL, part of RWS Holdings plc, is the intelligent language and content company. Our purpose is to enable global understanding, allowing organizations to communicate with their audiences worldwide, whatever the language, channel or touchpoint. We work with over 4,500 enterprise customers including 19 of the top 20 global financial services institutions.

We help our customers overcome their content challenges of volume, velocity, quality, fragmentation, compliance and understanding through our unique combination of language services, language technologies and content technologies.

Connect with our audience of high-level decision-makers in Europe and Asia from industries including: Retail & eCommerce, Supply Chain & Procurement, Finance, as well as many more. From whitepapers focused on your priorities, to benchmarking reports, infographics and webinars, we can help you to inform and educate your readers and reach your marketing goal at the same time.

Contact us to find out how your business could benefit from:

• Year-round access to our network of decision-makers and industry-leaders • In-depth research on current fast-moving issues and future trends • Lead generation campaigns that fit your priorities • Promoting your organization as an authority in your industry

To find out more, visit: wbr.co.uk



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