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Blog > June 2020 > Key Data Management Considerations for Your LIBOR Project

Key Data Management Considerations for Your LIBOR Project

The transition away from ICE Libor™ (LIBOR™) is the biggest data transformation challenge that many data managers in the financial services sector will ever face. However, this transition also provides the opportunity to better understand data and gain the competitive advantage. ASG Data Intelligence™ (ASG DI) can play a central part in a successful transition.

What is LIBOR?

ICE LIBOR™ (also known as LIBOR™) is a widely used benchmark for short-term interest rates. It’s the benchmark interest rate average at which major global banks lend to one another. However, LIBOR will not be published after the end of 2021, and market participants are strongly encouraged to transition to other risk-free rates

The seismic economic implications of the shift from LIBOR to risk-free reference rates can hardly be overestimated. As of March 2018, there were nearly USD200 trillion in LIBOR-dominated assets, including USD145 trillion of over-the-counter derivatives . LIBOR is used for many purposes including use as a benchmark rate for mortgages, corporate loans, government bonds, credit cards, and student loans.

How Does the LIBOR Transition Impact Data Management?

Because LIBOR is used in so many ways, it is a pervasive presence in structured data and risk calculations and in documents describing loan agreements, mortgages, credit card conditions and many more. Building the inventory—identifying all the impacted data structures and documents—is a massive task. And it’s a task with a deadline because LIBOR will be fully phased out by the end of 2021. This is a big project tying up a lot of resources at a time when COVID-19 is already disrupting normal working practices not to mention many other factors that are creating a volatile, uncertain, environment.

Unlike other compliance projects where failure to meet a deadline may incur penalties, the LIBOR project is mission critical as it could potentially bring business to a halt. Once ICE Benchmark Administration stops the daily publication of LIBOR, any business depending on it is dead. This is a project with a hard deadline!

Key Considerations for Your LIBOR Transition Program

  • Disparate nature of data – LIBOR rate-related data is scattered across a number of different risk, finance and accounting systems, spreadsheets, and physical artifacts/documentation.
  • Finding and tracing LIBOR data – This can be an equally complex activity due to inconsistencies in how data is organized at the logical and physical level and transformed across systems within an IT infrastructure, which can encompass thousands of applications.
  • Ensuring completeness and accuracy of analysis – The ability to find LIBOR data and trace its flow and impact across many systems and BI environments is complex and time consuming. Yet, the exercise is imperative both to find where the rates are process and to assess change to analyze the likely impact before adjusting the data with the new rates.

Steps to a Successful LIBOR Transition

The starting point, as with any such project, is the creation of an inventory.

  • What are the data elements related to LIBOR?
  • What are all the datasets creating those rates? What are all the contracts, and where are they documented.
  • What are the business processes that create and transfer rate-related data and depend on calculations using them?

Building that inventory is the first stage in building data maturity and an area in which ASG Data Intelligence excels.

The next vital step is understanding the way rate-related information moves and is transformed through the systems that support the many LIBOR-related business processes – that is, to understand the data lineage.

  • Develop a data glossary documenting business processes and terminology connected to data items and ensure data assets are accurately connected to processes.
  • Capture the metadata required to understand the flow of rate information from point of origination to eventual point of use – data lineage – and identify transformation points where derived values are calculated.
  • Enrich lineage analyses with data quality information to ensure proper focus on key areas.

The LIBOR transition is a business transformation program with many sub-projects to be tracked. ASG Data Intelligence’s Data Governance provides role management to ensure the right people are involved, workflows managing the decision making and execution processes, issue management to capture and resolve data-related issues are captured and resolved, and dashboards to report the progress of the program.

Seize the Opportunity to Transform Enterprise Data Intelligence

Success in the LIBOR business transformation depends on great data management, and there’s a tremendous opportunity in that. Implementing ASG Data Intelligence to meet the data management requirements lays the foundation for future data compliance and data value creation. It represents the greatest opportunity to establish strategic data management that most financial organizations will have ever seen. It’s time to grasp the opportunity, gain an edge in LIBOR-related businesses, and seize a decisive data management advantage.

Definitions

The Data Management Association (DAMA) defines Data Governance as, “the exercise of authority and control (planning, monitoring, and enforcement) over the management of Data Assets. It includes role management, workflow and issue management, and reporting.
 
Enterprise Data Intelligence is a strategic metadata-based approach to data management for data-related compliance and data-driven business agility. It implements a strategic approach to building a data inventory, adding business context, tracing data lineage, and sharing data to create data value.
 
How data travels, and is changed, as it moves from sourcing or creation to point of use. Data lineage can represent various aspects of data flow – business process, application, and data store.
 
Posted: 6/23/2020 8:30:00 AM by Ian Rowlands
Filed under :Data, Glossary, Governance, Intelligence, LIBOR, Lineage, Management, Quality