ARRC Releases Practical Implementation Checklist for SOFR Adoption
Published on 10 Oct 2019
•
USA (National/Federal)
•
by Practical Law Finance
PRACTICAL LAW
•
10 Oct 2019
The Alternative Reference Rate Committee (ARRC) released a practical implementation checklist for the adoption of its recommended USD LIBOR alternative, the Secured Overnight Financing Rate (SOFR), in preparation for LIBOR's expected discontinuation after 2021.
On September 19, 2019, the Alternative Reference Rate Committee (ARRC), a group of private-market participants organized by the Federal Reserve Board (FRB) and the Federal Reserve Bank of New York (FRBNY), released a practical implementation checklist for market participants on the adoption of its recommended USD LIBOR alternative, the Secured Overnight Financing Rate (SOFR), in preparation for LIBOR's expected discontinuation after 2021.
The checklist was developed as an informational document and recommends that market participants potentially impacted by LIBOR's discontinuation consider:
  • Establishing a robust governance program with senior executives who oversee, and are held responsible for, the firm's enterprise-wide LIBOR transition program.
  • Developing an enterprise-wide transition-management program across all functions and businesses to aid in the evaluation and mitigation of transition-related risks.
  • Implementing a communication strategy in order to proactively engage, communicate with, and educate impacted stakeholders.
  • Identifying and validating LIBOR product exposure during the transition period and developing ways to value SOFR products.
  • Developing a product strategy for transitioning LIBOR products.
  • Managing and overseeing risks associated with the transition, including market readiness, business impacts, financial, and legal risks.
  • Assessing the impact of and designing a plan for contractual remediation by reviewing new and existing LIBOR contracts and incorporating the recommended fallback language developed by the ARRC or determining the impact of existing fallbacks (see Legal Update, ARRC Recommends Fallback Benchmark-Replacement Language for Syndicated Loans and Floating Rate Notes).
  • Developing an operational and technology readiness plan to assess where LIBOR is primarily used throughout the business.
  • Determining accounting and reporting considerations, including the impacts of hedge accounting standards and process and accounting standards for cash products.
  • Determining taxation and regulatory considerations, including the impacts of hedge accounting based on current guidance and regulatory capital.
The ARRC also published a paced transition plan in October 2017, which includes specific steps and timelines meant to encourage the adoption of SOFR (see Practice Note, Interest Rate Benchmark Reform: Loan Markets: Work of Alternative Reference Rate Committee).
For more information on LIBOR and interest rate benchmark reform, see Practice Note, Interest Rate Benchmark Reform: Loan Markets: Transition Away from LIBOR.
End of Document
Resource ID w-022-4081Document Type Legal update: archive
Products

PLC US Finance, PLC US Law Department

© 2024 Thomson Reuters. No claim to original U.S. Government Works.