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SIBOS: AI, DATA & SECURITY

n r u t e R of the e i b m Zo The sequel to the LIBOR scandal threatens to be a chiller for financial institutions sitting on an undead graveyard of unstructured data. But Ann Heron, Chief Strategy Officer at Pendo Systems, is teaming up with the good guys to drive a stake through its heart So, what was it that so moved the Federal Bank of New York’s General Counsel Michael Held – not an office holder given to using inflammatory language – to describe it as ‘a DEFCON 1 litigation event if ever I’ve seen one’? It was five letters that spell out a concept so far removed from most people’s sphere of reference that the BBC had to post Janet and John-style explanations of what they meant when LIBOR first penetrated the public consciousness around 2012. (And, even then, it got the acronym wrong). The LIBOR scandal, as it came to be known, saw a sequence of major international banks, all members of www.fintech.finance

the cosy London Inter-Bank Offer Rate-setting club, hang their heads in shame and pick up hefty fines from regulators for manipulating a benchmark that impacts around $400trillion of financial products – from floating derivatives to your monthly mortgage. That was the first hint that LIBOR, once described as the world’s most important number, could be on a slow slide to oblivion. And by 2021 it will be well and truly dead, the nail happily banged into its coffin by regulators across the world who have instead been working up alternative, reference rates. In the US, the preference is for the Secured Overnight Financing Rate (SOFR); the UK is leaning towards the Sterling Overnight Index Average (SONIA); while other markets have chosen EONIA for trading in Euros, SARON for the Swiss franc and TONAR

The whole exercise has raised the terrifying prospect of a ‘Zombie LIBOR’ that persists in undead form in legacy contracts

for the Japanese yen. (And you thought LIBOR was tricky?). The problem comes not in setting rates for future products, but in determining what the rate should be for those pre-existing agreements that were pegged to LIBOR in the past. Not only is the adjustment not going to be a like-for-like swap, but financial organisations must first identify from the millions of records they hold, what needs to be updated and how. Legacy is probably an over-used word in financial services now, but the mathematical and administrative headache that it is creating for financial services companies is not one you’d want to inherit. The whole exercise has raised the terrifying prospect of a ‘Zombie LIBOR’ that persists in undead form in legacy contracts long after the real world has moved on. US advisors Arnold & Porter point out that ‘an estimated $350trillion of currently outstanding LIBOR-linked financial transactions expire after 2021 (in comparison, the US national debt is $22trillion)’. So, what can be done about it? Ann Heron, Chief Strategy Officer at Pendo Systems and herself a former senior officer at the New York Fed, has been close to the issue for some time. Issue 13 | TheFintechMagazine

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Profile for ADVERTAINMENT MEDIA

Fintech Finance presents: The Fintech Magazine Issue 13  

Fintech Finance presents: The Fintech Magazine Issue 13

Fintech Finance presents: The Fintech Magazine Issue 13  

Fintech Finance presents: The Fintech Magazine Issue 13