Few areas of the financial sector are undergoing such profound and rapid change as in the area of benchmarks, rates and indices. As the fallout of high-profile rate rigging scandals continues to be felt, even one of the most important underpinnings of the financial markets – LIBOR – is due for wholesale reform.
The stated aim of regulators is to phase out the official LIBOR benchmarks by 2021 in favor of alternative reference rates. With around 35 LIBOR rates due to be replaced, and considering that some $240trn-worth of derivatives, loans and bonds are priced off LIBOR, this represents a significant market shift for firms and one that could prove disruptive from a data management perspective.
The key challenge for buy-side firms is a lack of forward visibility into how LIBOR reform will progress. The full final scope of LIBOR reform and the associated timeline is evolving in line with ongoing industry discussions. As such, it can be difficult for firms to plan for change and ensure they source and on-board LIBOR replacements in a timely, effective and efficient manner. Keeping a continual watch on the market is time consuming for in-house data management teams and stops them focusing on more valuable, core business activities.
One solution to this challenge is to turn to the managed data service market and outsource the challenge of adapting to the post-LIBOR regime to relevant experts. Partnering with a managed data service provider allows firms to leverage economies of scale and sector expertise to ensure that they can adapt to change the moment it happens while keeping costs in control. In the case of LIBOR, this partnership must include automatic and seamless access to all proposed LIBOR alternatives the moment these become available.
Andrew Barnett, Global Head of Product Strategy at RIMES, explains further: “There is a clear role for managed data service providers like RIMES to hep firms navigate LIBOR reform. By monitoring industry events around LIBOR and pre-building and testing solutions to any resulting challenges, we free firms to focus on their core competencies safe in the knowledge their business is keeping up with the evolving market. Its an approach that we’ve already used to help clients stay ahead of other market disruptions, most recently helping them react to FTSE Russell’s overhaul of its ICB universe, and its one we know will work well for LIBOR reform.”
LIBOR transition is just one of the many data management challenges facing firms today. However, reacting to such challenges need not be a case of continual crisis management. By partnering with experts like RIMES that focus on industry changes day-in, day-out, firms can put in place a data management and compliance capability that is flexible, dynamic and always current.
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