The transition from London Inter-Bank Offered Rate (LIBOR) to alternative risk-free rates is posing a global risk in recent times. There are over $400 trillion in loans and derivative contracts globally exposed to LIBOR. In this article, we analyze some of the key challenges of the LIBOR transition and how they were addressed by leveraging on Loan management system upgrade.
Despite global uncertainty due to Covid-19, FCA (Financial Conduct Authority) and other regulators are proceeding ahead with the LIBOR transition. Consequently, it has been unavoidable remediation for any financial institution. Banks have numerous contracts linked to LIBOR and the same must be transitioned to the new Risk-Free Rate (RFR) regime smoothly.
To cater to the LIBOR transition, the banks / FIs will have to ensure that while the Loan Management System (LMS) has holistic capabilities like recon, payment, limit management, and accounting and control, they should also have the flexibility to adapt to the recent changes.
In a typical upgrade project for LIBOR compliance, there will be several phases and each phase with its objective to enhance the product quality. it is important to implement system tests, Integration tests, UAT (User Acceptance Testing), and DRH. The projects can be managed in an agile fashion with a higher focus on sprint planning and timeline to achieve objectives along with walkthrough sessions and formal test review meetings to achieve quality in testing.
HCL has vast experience in implementing market leading Loan Management Systems (LMS) systems for customers across the globe. HCL has been the preferred partner for various LMS implementations. As a part of the LIBOR upgrade, HCL has supported banks in the LIBOR upgrade and transition to the new RFR Successfully and transition to the RFR regime before the stipulated timelines of LIBOR sunset.