After 2021, banks will no longer be able to rely on LIBOR, the world’s most widely referenced benchmark interest rate. The rate underpins $350 trillion in debt and derivative contracts worldwide, including $200 trillion US dollar-denominated contracts. LIBOR’s migration will have far-reaching consequences both for banks and their external stakeholders. In order to effectively manage the expectations of all stakeholders, banks should develop a robust communications strategy. Synchronizing the collective understanding and efforts of the countless numbers of parties involved will be a crucial exercise with little room for error. Getting this wrong at the onset would be a certain path toward an unsuccessful migration, colored by a background of unhappy clients, disgruntled employees, and unsatisfied regulators.
This undesirable outcome can be avoided by developing a comprehensive transition approach that includes a formal communications strategy that will ensure ongoing commitment and support to all stakeholders during every step of the transition. As a quick check to see if your bank is heading in the right direction, ask yourself:
The first stage of developing a communication strategy and LIBOR transition plans should include an impact assessment to understand which teams will be most affected by a benchmark rate change and what their training and communications needs will be. The goals, concerns, and interests of each internal stakeholder group should be identified to determine the appropriate scope and level of detail required for internal communications and training. Additionally, communication and training needs will vary based on each group’s required level of commitment and engagement in supporting the transition. At the most basic level, employees should be made aware of the fundamental elements of the transition, the bank’s timing and approach, and how the transition will impact their specific teams, roles, and responsibilities.
External stakeholders should be kept updated and informed on the LIBOR transition, with tailored communications based on the goals, concerns, and interests of each stakeholder group. A multi-channel communications strategy should be developed to proactively engage and educate bank clients and clients. This should ideally include readiness assessments to gauge the level of sentiment and understanding clients regarding the transition, particularly for both clients of net-new products as well as legacy LIBOR-linked products maturing after 2021. Central oversight should be established for client communications across all products, channels, and departments to ensure that messaging is clear, consistent, and transparent to mitigate the risk of knowledge gaps and provide positive client experiences.
Vendors and business partners will also need to be informed of bank transition plans. While vendors will likely already know the fundamentals of the rate transition, they will need to understand how their bank partners’ transition plans will impact their ability to provide reliable service delivery during and after the transition. Vendors and banks should be closely aligned on each other’s transition work efforts, such as updating interfacing components around people, processes, and technology. An effective communications strategy should seek to establish close alignment and collective understanding among bank and vendor stakeholders while maintaining continued synchronization of work efforts to ensure that service delivery outcomes continue to match expectations.
Finally, banks should be prepared to communicate their established transition plans with regulators. The LIBOR transition has been steadily gaining increased focus and attention by regulators, including the New York Department of Financial Services (NYDFS) and Office of the Comptroller of the Currency (OCC), which both have announced their intentions to increase scrutiny of regulated institutions’ transition plans and risk exposures. Establishing formal and documented materials for the program such as governance structure, high-level road map, and key milestones and activities will help to promote information sharing and constructive discussions with regulators.
An effective communications strategy requires a comprehensive approach to address the varying goals, concerns, and interests of all internal and external stakeholder groups. At a minimum, the strategy should also acknowledge the necessary frequencies, timelines, channels, and purposes of communication for each stakeholder group. This will build a cohesive, shared understanding of the benchmark rate change, and ensure a smooth transition journey for everyone involved.
Communication is the cornerstone of effective collaboration. If banks develop comprehensive communication plans and effectively execute against them, stakeholders will be far more likely to be engaged early rather than perplexed later on. This will drive better synchronization, cooperation, and partnership during this momentous industry shift.