The Alternative Reference Rates Committee (ARRC) released the “Internal Systems and Processes: Transition Aid for SOFR Adoption” to support market participants transitioning to the Secured Overnight Financing Rate (SOFR), the ARRC’s preferred alternative to US dollar (USD) LIBOR.
The document builds on previous ARRC publications, including the User’s Guide to SOFR, the Practical Implementation Checklist, and the Buy-Side Checklist, to identify the processes and systems that may need to be updated for a successful transition to SOFR.
“Transitioning from LIBOR involves complex challenges for many institution’s internal systems and processes. This publication provides a clear taxonomy for organizing one’s strategy for moving to SOFR and overcoming associated transition challenges,” said Tom Wipf, ARRC Chair and Vice Chairman of Institutional Securities at Morgan Stanley, in a statement.
The document broadly classifies transition activities into the following categories, with one-page summaries for the sub-topics covered within each: product and business development; trading and brokerage; client servicing; trading risk management; data management; operations; risk controls; financial controls; legal and compliance; and information technology.
Each summary lists transition activities for market participants to consider, as well as sections on upstream and downstream areas that may be affected by the transition. The summaries also identify dependencies that may influence the timing and sequence of transition activities.
The ARRC is a group of private-market participants convened by the Federal Reserve Board and Federal Reserve Bank of New York in cooperation with the Consumer Financial Protection Bureau, the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, the Office of Financial Research, the Office of the Comptroller of the Currency, the Commodity Futures Trading Commission, the Securities and Exchange Commission and the US Treasury Department.