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LIBOR transition: what firms need to do, and what are the risks

From 2022, the London Interbank Offered Rate will be replaced by alternative reference rates (ARRs). An expert view of the alternatives, plus next steps for firms in managing conduct, legal and programme risk.

cover story June 2019 FS FocusThe London Interbank Offered Rate (Libor) has survived since 1986, with almost $200trn of transactions spanning derivatives, loans, securities and mortgages. But, after courting controversy during the 2008 financial crisis, Libor is set to be replaced by alternative reference rates (ARRs) from 2022.

This has led the industry to seek out alternative reference rates. For example, the Secured Overnight Financing Rate (SOFR) records the cost of borrowing cash overnight in US dollars. It inherently differs from Libor as it is a secured, risk-free, transaction based rate. Libor is unsecured, it includes bank credit risk and is only partially transaction based.