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Sia Partners LIBOR Transition Study Shows the Need for NLP to Hit Regulatory Deadline

  • Benchmarking study of over 70 market participants shows that those institutions that are effectively leveraging technologies such as NLP are positioned to meet the Dec 2021 LIBOR Transition deadline.
  • Even prior to the ARRC confirmed there would be no delay to the cessation date in late May, more than 80% of firms did not want one and less than 10% expected one.
  • COVID-19 has created some uncertainty, with nearly 80% of all banks surveyed reporting some impact, although limited, on their readiness for the transition deadline
  • Smaller and more regionally focused banks are facing challenges, which have been exacerbated by the pandemic.
  • Those banks that are using technology to save time and increase accuracy are better placed to address customer engagement driven by the challenges of LIBOR transition.

London, UK – technologies such as NLP have a contributing role in supporting financial institutions ability to meet the deadline for the phase out of the LIBOR benchmark rate at the end of 2021 according to a major new study by Sia Partners. The study, which Eigen Technologies contributed to, shows the substantial body of work remaining for banks and financial institutions to complete prior to the cessation date, particularly around the risks of transitioning customers to a new rate regime.

Financial institutions face potentially significant regulatory, reputational, and legal risk if they are not able to effectively identify, analyze and remediate impacted customers and contracts. The pandemic has only increased uncertainty and created greater pressure on resources, with nearly 80% of all banks surveyed reporting some short-term impact on their transition deadline, the study showed. Of these, 75% of US regional banks (and two thirds of non-US banks) indicated there was some impact with temporary reprioritizations affecting their LIBOR transition efforts

The study also finds that roughly two thirds of the institutions surveyed identified middle market commercial lending as the area most impacted. As Eigen Technologies has identified in some of its client work, failing to effectively communicate changes to clients in this area can carry risks and leave financial institutions open to potential reputational damage, client attrition, and legal action.

Many financial institutions are already looking at investing in solutions such as Eigen’s NLP technology to resolve these issues. In addition, the study noted, many medium and small banking institutions, both in the US and abroad, had identified additional resources includeding AI & NLP among possible solutions.

Dr Simone Bohnenberger-Rich, Director FS of Eigen Technologies said:

This timely study from Sia Partners demonstrates that the market knows that those institutions that are using technology in a strategic manner are the ones best placed to meet the challenges of LIBOR transition. We know that many of our clients have been among the first to complete their document review. This has given them invaluable additional time for customer outreach to manage the economic and conduct risks inherent in the transition. We are also seeing that those who are using technology are more able to take a granular approach, allowing them to really tailor how they approach their customers.

Finally, the LIBOR transition is also an opportunity to invest in and integrate technologies that will have an impact well beyond the transition. We are seeing some institutions use the transition as an opportunity to accelerate the adoption of advanced technology for multiple uses inside their organizations.

The report authors, Bradley Ziff, Senior Advisor & Operating Partner & Chris Zachodzki, Manager at Sia Partners said:

The LIBOR transition continues to present unique challenges in both its scale and complexity as we have found in our client work and our reports on the transition. We believe that the pandemic, accentuates one clear reality: this was a tough challenge before and remains a significant lift for firms worldwide over the next 18 months to meet the cessation date. The results of the study emphasize that organizations remain fully engaged and focused on meeting industry milestones and addressing key hurdles associated with the transition.