Getting the Luxembourg financial markets ready for the upcoming challenges

ABBL Published 05.07.2019

On 13 June 2019, the Luxembourg Financial Markets Association (LFMA) invited the industry actors to their Annual General Meeting, during which the topical discussions focused on the upcoming benchmark reform.

 

A high-class and lively panel, led by Refinitiv’s Jan Eger and composed of both public and private sector representatives hailing from the European Central Bank and the European Investment Bank, as well as from the French and German markets, introduced this technical topic to an expert audience who will live through the benchmarks reform on a daily basis as soon as it enters fully into force in the coming months.

The initial discussion focused on the progress that has already been made with the adoption of the risk-free rates, before turning to the challenges ahead for delivering and finalising the transition.

The main areas of concern and work highlighted by the panelists include trading and hedging, risk management and legal documentation processes, as well as back office functions, such as accounting and treasury management. An overview of the main areas of concern in relation to the different types of business may look as follows:

Diving into the finer details of the reform, the representatives confirm that, in particular, the transition to the €ster Overnight Rate is not going to be easy, creating significant operational and treasury related challenges. As such, planning is key, and all the participants clearly stressed the importance of a thorough and proper preparation phase to ensure a smooth and successful transition.

However, the transition will not only have to be properly prepared from a technical point of view, as the budgeting considerations relevant for the transition are of the utmost importance as well. As pointed out by all panelists, the price tag on the European benchmarks reform is much higher than initially anticipated and hence proper budgeting to ensure a smooth transition should be ensured. Some market participants consider that the cost of the transition will, in the end, be in a similar range than the MiFID2 transition costs.

Finally, the panel’s key message is the absolute need to prepare for the transition from the IBORs to the risk-free reference rates: within the market firms and banks, together with the market participants and legal experts. In addition, the preparation needs to be taken one step further towards the clients to ensure that they understand what the transition involves and the manner in which they are or might be affected. Together with a proper use of technology in the implementation phase, the preparation efforts put into the benchmarks reform will define how elegantly the transition will be managed.

Following this most interesting panel, the evening continued with LFMA’s AGM where Vincenzo Giunta, president of LFMA, highlighted the key achievements of LFMA throughout 2018 and 2019 (including a new and revised certification for financial markets professionals) before introducing his partly renewed board and inviting the audience to celebrate with him the thriving financial markets industry in Luxembourg.

Stay tuned for next week’s edition for more information on the European Treasury Working Group which met the following day at the House of Finance to discuss a range of topics relating to the treasury function within banks as well as financial markets more generally.

By Gilles Walers, Legal Adviser, ABBL

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