The FICC Market Standards Board (FMSB) has published a review on LIBOR transition with case studies to help market participants navigate conduct risks when offering new products to clients or changing performance benchmarks.
FSMB notes that the LIBOR transition presents market participants with unique challenges, but also that many of the conduct challenges and the ways to manage them are not new.
The guidance sets out the relevant FMSB principles and regulatory expectations in respect of risk identification, governance, communicating with customers, conflicts of interest, treating customers fairly and market conduct. The case studies based on this guidance cover:
- sale and issuance of new products, from the perspective of the bank and the end user in three scenarios:
- bilateral or syndicated corporate sterling borrowing through a SONIA based, or BoE base rate, loan;
- corporate sterling borrowing through a SONIA based loan and simultaneously entering into an interest rate swap to fix the interest payments;
- corporate entering into a USD LIBOR-SONIA swap to hedge exposure arising from GBP loan and USD investment; and
- buy-side focused risks n the case of a fund manager switching performance benchmark of fund to SONIA.