Factor Benchmark Reform Roundtable Takeaways

Brad Martinez
April 22, 2020

When discussing how to maintain focus on successful program delivery amidst COVID and its related economic challenges, four important concepts emerged:

  1. Integration of review and remediation activities – Regardless of how you’re approaching program phases, consider the interdependence of activities in a holistic way, including what data you need to extract at review for remediation. Failure to do so significantly increases the risk of re-work and increased cost;
  2. Making smart use of technology without overreliance - Technology will help drive considerable efficiencies if applied in a pragmatic, considered way. Beware of unrealistic expectations and overreliance as these can create serious operational and budgetary strain;
  3. Reporting, analytics, and stakeholder management - IBOR transition has a scale and cross-business line interconnectedness not often seen in regulatory change projects. Timely, informed, data driven stakeholder coordination is imperative to mitigating risk and keeping programs on track;
  4. Integration of legal advice with operations at scale - Given relative scale and complexity, consider the total cost of ownership of your documentation program. Traditional models are unlikely to be economical so it’s important to understand comparative advantages of and connection points between the tools and resources at your disposal.  

Other key insights included:

  • Transition Delay - 95% of the audience felt there was less than a 50% chance of a 6-12 month delay, with continued strong messaging from regulators on the timeline;
  • Impacts on Readiness - In spite of the current logistical issues caused by COVID, the greatest concern among the audience was development of interest rates in the market.
  • ISDA Protocol - A slim majority of the audience (56%) expected significant buy side adherence to the protocol. When looking at the use of the Protocol for non-ISDA documents, this may be of some use, but will not be a gamechanger;
  • Connected Transactions - There is no silver bullet for identifying transactions that span multiple desks (e.g. loans and associated hedges). Having a robust data model coupled with inter-business line reporting and governance will help mitigate significant basis risk that can occur due to disjointed operations.
  • Conduct Risk - With the increased market volatility, clients need to be increasingly cautious about treatment of distressed assets and newly vulnerable customers. They should prepare to capture and retain the content of client communications for a longer period, as claims could continue for years.