LIBOR Insights from Structured Finance Las Vegas 2020
Our LIBOR guru, who was as a panelist on talk about technology and LIBOR transition at SFVegas 2020, shares key takeaways from the lively discussion.
2 March 2020
On February 23-26 SS&C Intralinks attended the Structured Finance Association Las Vegas Conference (SFVegas) at the Aria Resort & Casino. SFVegas is the biggest capital markets symposium in the world. The agenda is crafted by the major players in the industry and encompasses a full range of market participants including FinTech, rating agencies, law firms, accounting firms, investors, issuers, financial intermediaries, regulators, servicers and trustees.
Many of this year’s topics covered structured finance as it relates to global political, social and environmental conditions. While these realities are tangential to structured finance, they pose real risk and opportunity in the coming years.
There was a workshop on how EU ESG (environmental, social and governance) investing best practices and how those best practices may be adopted in the U.S. Another session on the impact of the 2020 elections on the financial markets, as well as a session on current tenuous state of U.S. politics. Diversity in Finance was also a big topic with several sessions. And several sessions demonstrating that Solar is finally getting its moment to shine in the form of more ABS deals as the cost for solar infrastructure continues to drop.
LIBOR was also front and center with three sessions: “Legacy LIBOR and Legislation, SOFR and Benchmark Liquidity,” “Operational Considerations for LIBOR Transition” and a panel discussion on “Technology and LIBOR Transition” which I was a panelist on.
Technology and the LIBOR Transition Panel Discussion
According to an audience poll at the beginning of the session, around 70 percent of firms have made significant progress in the transition and around 30 percent are just getting started. The panelists built on the audience poll by pointing out that a firm’s LIBOR transition progress is key to its bottom line. Failure to execute on LIBOR transition in time could present serious cash flow issues so much so that rating agencies are now looking at a firm’s LIBOR transition preparedness when applying a credit rating.
There was also consensus among the panelists on a factory floor assembly-line approach to LIBOR contract remediation where the right SMEs armed with the right technology are embedded at the appropriate stage in the process.
Panelist Alexey Surkov supported this theme by pointing out that firms relying solely on technology to save the day will most likely not be transitioned away from LIBOR by the 2021 deadline. Instead, a combination of people, technologies, and process are what is required. Linc Finkenberg underlined this point by saying that it is very hard to train artificial intelligence (AI) systems without SMEs that have a deep understanding of the underlying deal documents. While beginning the LIBOR transition process now is key to meeting the 2021 deadline, panelist Eli Stern commented that committing to long-term LIBOR replacement language now could be risky given the regulatory ambiguity and lack of market leaders defining a best practice. A good example of this is RMBS. Panelist Ola Hannoun-Costa and Linc Fiikenberg pointed out that with RMBS, it’s a certainty that the underlying consumer mortgages will reference a new rate. However, it’s not clear what will happen to the overlying security that packages those mortgages.
Flying back from Vegas after the show with several other show attendees, I couldn’t help but wonder what the coming year will bring – perhaps a more diverse industry, warmed by the sun, ready to transition from LIBOR by December 2021!
I invite you to read more about SFVegas 2020 here on a report filed by my colleague, Joe Campbell.
Dominic Brown is a field technology head at Intralinks in Waltham, MA. Dominic employs his 15 years of compliance and IT experience, along with Intralinks’ unique technology, to help organizations address challenges with sharing, distributing, and collecting highly confidential data. Dominic helps organizations understand and change internal procedures to deploy technology solutions that dramatically reduce the risk and expense associated with secure data exchanges. He has spent his career working with the Fortune 1,000 and North America’s largest government agencies.