Finance Monthly April 2019 Edition

For financial institutions, executing the move away from the interest rate benchmark, LIBOR, to alternative interest reference rates (e.g. SONIA, SARON) is a colossal exercise. It requires them to structurally revisit everything from their products and accounting strategies and tactics through to their risk models and valuations – to make the necessary amendments. Below, Peter Wallqvist, Vice President of Strategy at iManage RAVN, explores why a human-supported adoption of AI technology offers the safest and soundest solution to amending LIBOR contracts. Unstructured information Perhaps the biggest challenge lies in financial institutions’ ability to identify and quantify the contracts that need to be transitioned from LIBOR to alternative reference rates – within the existing remit of these documents. Despite financial institutions using reporting tools to capture contract-related data, typically nearly 80% of information is unstructured and locked up in documents. There is no searchable metadata for easy extraction. So, in the absence of visibility of the contract landscape, determining the volume of contracts that require repapering across the portfolio for LIBOR is an enormous undertaking. With the problem quantified, financial institutions then must identify the relationships that are impacted. For instance, which of those contracts have fall-back provisions, which agreements will require renegotiations and, if so, what the amendment process will be, and so on. There are substantial financial risks to institutions if contracts are not accurately amended. AI ADOPTION THE SOUNDEST APPROACH TO AMENDING LIBOR CONTRACTS Peter Wallqvist, Vice President of Strategy at iManage RAVN 28 www.finance-monthly.com ASK THE EXPERT - LIBOR CONTRACTS